III

ANNUAL REPORT 2018

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

CONTENT

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Key figures 3 Group management 6 Group structure 7 Where we operate 8 Our business 9 Mission, vision og values 10 Highlights 2018 11 Agder Energi and the enegry industry 12 The big picture 13

Corporate governance 14 Enterprise risk management 18 Corporate social responsibility (CSR) 21 Board of director´s report 23

THE AGDER ENERGI GROUP Income statement 37 Comprehensive income 38 Statement of financial position 39 Statement of cash flows 40 Statement of changes in equity 41 Accounting principles 42 Notes 50

AGDER ENERGI AS Income statement 93 Statement of financial position 94 Statement of cash flows 95 Accounting principles 96 Notes 98 Auditor´s report 108 Alternative performance measures (APM) 112

CORPORATE SOCIAL RESPONSIBILITY (CSR) AT AGDER ENERGI IN 2018 CSR 116 Sustainable energy for future generations 118 Agder Energi’s values 119 Sustainability at Agder Energi 120 Important sustainability topics for Agder Energi 121 Group CSR goals 123 Social Accounting 124

AGDER ENERGI ANNUAL REPORT 2018 2

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

KEY FIGURES

RESULTS

NOK mill. %

3000 25Årsresultat 30 2500 Drisresultat Egenkapitalavkastning etter skatt25 20 2000 Avkastning sysselsatt kapital etter skatt EBITDA 20 15 1500 15 10 1000 10

5 500 5

0 0 0 2018 2017 2016 2018 2017 2016 2016 2015 2014

EBITDA Operating income Net income Return on the capital employed (after tax) Return on the equity after tax Avkastning sysselsatt kapital etter skatt Egenkapitalavkastning etter skatt

Def. 2018 2017 2016 2015 2014

FROM INCOME STATEMENT Operating revenues mill. kr 13 980 10 358 8 086 8 260 7 832 EBITDA 1 mill. kr 1 626 1 770 1 573 2 886 2 327 Operating profit mill. kr 967 1 062 972 2 309 1 738 Profit before tax mill. kr 853 848 799 2 138 1 310 Net income for the year (controlling interest's share) mill. kr -198 487 251 1 314 616

FROM BALANCE SHEET Total assets mill. kr 22 616 20 831 20 319 19 240 16 929 Equity mill. kr 3 526 4 565 4 626 4 893 3 990 Interest-bearing liabilities mill. kr 9 260 9 240 9 143 9 029 8 299 Capital employed 2 mill. kr 12 787 13 805 13 769 13 921 12 288 Unrestricted liquidity 3 mill. kr 2 864 2 372 2 023 1 969 1 416 Net interest-bearing liabilities 4 mill. kr 8 896 9 188 8 620 8 560 8 257 Interest-bearing liabilities due over coming 12 months mill. kr 1 659 1 740 2 243 1 745 1 184 Bank deposits excluding restricted assets mill. kr 364 52 523 469 42

UNDERLYING PERFORMANCE 5 Underlying operating revenues mill. kr 15 312 11 185 8 705 7 458 7 970 Underlying EBITDA mill. kr 2 957 2 597 2 192 2 084 2 465 Underlying operating profit mill. kr 2 298 1 889 1 591 1 507 1 876 Underlying profit before tax mill. kr 2 117 1 645 1 328 1 230 1 553 Underlying net income for the year (controlling interest's share) mill. kr 874 845 738 698 943

CASH FLOW Net cash provided by operating activities mill. kr 2 049 1 189 1 779 1 502 1 512 Dividends paid mill. kr 608 610 660 706 713 Maintenance investments mill. kr 397 470 522 571 331 Investments in expansion mill. kr 1 000 878 733 625 705 Acquisition of shares/ownership interests and capital increases mill. kr 94 69 155 81 42

AGDER ENERGI ANNUAL REPORT 2018 3

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

KEY FIGURES

FINANCIAL POSITION 2018 2017 2016

Equity 3 526 4 565 4 626

Interest-bearing liabilities 9 260 9 240 9 143

Capital employedl 12 787 13 805 13 769

Total assets 22 616 20 831 20 319

Def. 2018 2017 2016 2015 2014

KEY FIGURES FOR UNDERLYING PERFORMANCE Return on capital employed before tax 6 % 17,8 13,7 11,3 11,3 15,2 Return on capital employed after tax 7 % 8,1 7,5 6,8 6,7 9,5 Return on equity after tax 8 % 21,6 18,4 12,2 14,9 22,4 Equity ratio 9 % 15,6 21,9 22,8 25,4 23,6

HYDROELECTRIC POWER EBITDA mill. kr 2 629 2 034 1 749 1 606 1 920 Actual electricity generation 10 GWh 8 686 8 812 8 880 8 996 9 060 Expected electricity generation 10 GWh 8 100 8 100 8 100 7 900 7 900 Reservoir reserves at 31 Dec. GWh 3 180 4 429 3 766 5 185 3 900 Reservoir capacity GWh 5 250 5 250 5 250 5 250 5 250 Average spot price øre/kWh 41,5 26,9 23,3 17,7 22,8 Electricity price realised øre/kWh 39,2 30,5 27,8 25,8 28,2 Cost of generation/kWh øre/kWh 10,0 10,6 11,3 10,9 10,6

DISTRIBUTION SYSTEM OPERATION EBITDA mill. kr 287 531 637 410 359 Number of transmission and distribution customers i 1 000 202 199 195 190 190 Energy supplied GWh 5 670 5 573 5 581 5 624 5 454 Power grid capital (NVE capital) 11 mill. kr 5 083 4 644 4 101 3 833 3 691 KILE cost 12 mill. kr 187 64 53 61 50

ELECTRICITY SALES EBITDA mill. kr 75 120 97 104 114 EBITDA margin % 1,2 2,4 2,8 4,6 4,2 Electricity sales GWh 14 106 14 324 11 500 8 470 8 670

CONTRACTING EBITDA mill. kr 44 -59 -7 -8 22 EBITDA margin % 4,6 -6,1 -0,7 -0,8 2,4 Share of turnover from intra-group transactions % 4,9 15,1 13,2 17,5 20,1

AGDER ENERGI ANNUAL REPORT 2018 4

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

KEY FIGURES

Def. 2018 2017 2016 2015 2014

DISTRICT HEATING EBITDA mill. kr 41 40 33 28 25 Energy supplied GWh 155 143 137 123 118 Price of heating sold øre/kWh 72 63 59 56 57 Gross margin, heating øre/kWh 43 38 32 24 25 Share of renewable generation % 99 99 99 98 98

EMPLOYEES, HEALTH AND SAFETY Number of permanent and temporary staff at 31 Dec. 1 005 1 210 1 432 1 294 1 245 Number of permanent and temporary full-time equivalents at 31 Dec. 976 1 162 1 401 1 270 1 220 Sickness absence % 3,6 3,5 3,5 3,5 3,6 Lost time injuries per million work hours 2,2 2,1 3,5 3,0 3,5 Total non-lost-time and lost-time injuries per million working hours 3,8 3,7 5,4 6,4 8,4

DEFINITIONS 6. (Operating profit + financial income) / Average 1. Operating profit before depreciation and impairment capital employed. losses. 7. (Net income for the year + interest expense after 2. Equity + interest-bearing liabilities. tax) / Average capital employed. 3. Bank deposits and unused credit facilities. Excludes 8. Profit for the year / Average equity. restricted assets. 9. Equity / total assets. 4. Interest-bearing liabilities - unrestricted liquidity. 10. All power generation figures are quoted prior to 5. The underlying figures take the Group’s IFRS profit and pumping and losses. adjust it for unrealised gains and losses on financial 11. Basis for calculating the income cap. Set by the instruments, material gains and losses on the disposal Norwegian Water Resources and Energy of businesses or ownership interests in businesses and Directorate (NVE). changes in the way that negative resource rent carryfor- 12. Adjustment to income cap for energy not wards are calculated; see page xx for further details. supplied.

THE DISTRIBUTION OF ELECTRICITY PRICES, GRID RENT AND PUBLIC FEES FOR AN AVERAGE CUSTOMER IN 2018: The electricity bill the customer pays consists of: • The electricity price, which the customer pays to its electricity retailer. Customers can choose between a fixed or variable rate electricity contract (in the same way as for a mortgage). The electricity price also includes a mark-up for the electricity retailer and the cost of legally required electricity certificates. 34,5 % 40,5 % • Network tariffs, which go to the customer’s local distribution system operator, to cover the operation, maintenance and devel- opment of the electrical grid. Each year, the Norwegian Water 25 % Resources and Energy Directorate (NVE) sets how much each distribution system operator can charge.

• Government taxes: VAT, electricity tax and contributions to the

Public taxes Network tariffs Electricity price Enova fund.

AGDER ENERGI ANNUAL REPORT 2018 5

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

GROUP MANAGEMENT

Tom Nysted CEO

Pernille Kring Gulowsen Unni Farestveit Jan T. Tønnessen Finance and risk management CSR and corporate development Hydroelectric power

Steffen Syvertsen Anders Gaudestad Frank Håland Energy management Market Shared services

AGDER ENERGI ANNUAL REPORT 2018 6

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

GROUP STRUCTURE

CEO Tom Nysted

FINANCE AND RISK MANAGEMENT Pernille K. Gulowsen

Board of directors network

CSR AND CORPORATE DEVELOPMENT Unni Farestveit

SHARED SERVICES HYDROELECTRIC POWER ENERGY MANAGEMENT MARKET NETWORK Frank Håland Jan T. Tønnessen Steffen Syvertsen Anders Gaudestad Svein Are Folgerø

AE FLEKSIBILITET AE KRAFTFORVALTNING LOS PRIVAT

ENFO ENTELIOS NORDIC OTERA RATEL

ENTELIOS KONTINENTAL EUROPE AE VARME

Administrative and shared service NORDGRÖÖN AE VENTURE Business areas

Subsidiaries

AGDER ENERGI ANNUAL REPORT 2018 7

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

WHERE WE OPERATE

Power station

Premises/offices

District heating/cooling

Power stations under construction

Oslo

Stockholm

Medelby

Berlin Holen Skarg

Brussel Valle

München Finndøla Brokke Nomeland Rysstad Zürich

Hekni Nisserdam Tjønnefoss Hovatn Dynjanfoss Høgefoss Berlifoss Jørundland

Åseral Nord Kuli Logna Longerak

Tonstad Osen Smeland

Evje Skjerka Uleberg Lislevatn Hanefoss Evenstad Håverstad

Stoa ARENDAL Iveland 2 Rygene Kvinesdal Iveland Nomeland GRIMSTAD Steinsfoss FLEKKEFJORD Høylandsfoss Hunsfoss Færåsen Laudal LILLESAND Tryland

LYNGDAL

KRISTIANSAND FARSUND

MANDAL Lindesnes

AGDER ENERGI ANNUAL REPORT 2018 8

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

OUR BUSINESS

Agder Energi’s subsidiaries are organised enable industrial companies, big and small Marketing into four business areas, which reflect the businesses and public enterprises to lead The Marketing business area comprises Group’s core activities and how it gene­ the way in terms of climate-friendly energy­ the contractor Otera AB, the retail supplier rates added value: Hydroelectric Power, solutions. Entelios specialises in managing LOS AS, the district heating supplier Agder Energy Management, Network and Mar- and trading electricity in a market where Energi Varme AS, Agder Energi Venture AS, keting, as well as the parent company and energy from renewable sources such as as well as some strategic and financial shared services. The Group’s business hydro, wind and solar power are replacing ­investments. Agder Energi holds a non- ­areas and administrative departments at fossil fuels. controlling interest in Otera Infra AS (after the parent company are led by directors. reducing its ownership interest in 2018). They and the CEO constitute the senior • Agder Energi Kraftforvaltning AS is re- management team. sponsible for managing and maximising • Otera AB is a supplier of electrical infra­ the return on the electricity generated structure services that mainly operates Parent company and shared services by the Group, on behalf of Agder Energi in Sweden. They generate profit by Agder Energi AS provides administrative Vannkraft AS. It does this by trying to safely and efficiently implementing ope­ functions and shared services to the optimise scheduling and by managing ration and maintenance projects and Group. It is also responsible for various market risks, taking into account hydro­ contracts. new ventures, including Agder Energi logy, weather data and information Fleksibilitet and NODES, which are organ- about markets. AE Kraftforvaltning AS • LOS AS is responsible for supplying ised as separate legal entities. is also responsible for the Group’s trad- electricity to the retail market. It is the ing portfolios. dominant player in the Agder region Hydroelectric Power and also serves customers in the rest of The Hydroelectric Power business area is • Entelios Nordic consists of the compa- Norway. LOS mainly generates profit responsible for developing, operating and nies Entelios AS (demerged from LOS from the margin it achieves on electri­ maintaining the Group’s wholly-owned and AS in 2017) and Entelios AB. Entelios city sales, as well as by having a cost- part-owned hydroelectric power stations. Nordic is one of the leading electricity efficient business model and good cust­ The biggest driver of value creation for the suppliers to the commercial market in omer relationships. business is its power generating capacity. Scandinavia. This is affected by the availability of plant • Agder Energi Varme AS supplies district at power stations, reservoir volumes per- • Our German operations consist of the heating and cooling in the Agder ­region. mitted by its licence terms and addition of companies Entelios GmbH, Entelios AG, AE Varme adds value by building and new capacity through reinvestment and by and Nordgröön Energie GmbH. These operating infrastructure for the genera- obtaining new licences. It operates through businesses are involved in trading and tion and distribution of water-based the company Agder Energi Vannkraft AS. managing renewable energy, flexibility heating and cooling for buildings. It and guarantees of origin. generates energy using waste heat and Energy Management renewable energy sources. The Energy Management business area is Network responsible for the Agder Energi Group’s The Network business area is responsible • Agder Energi Venture AS invests in market operations. This includes physical for fulfilling our duty to society to provide energy-­related businesses from start-up and cash-settled electricity trading and electrical energy to end users. Introducing through to maturity, and adds value by managing market risk. big data solutions, as well as smart meters, proactively contributing to their develop- is helping the company to ensure that it ment. One of its important roles is devel- The business area is also responsible for continues to manage the electrical grid oping industrial options for the Group. executing the Group’s strategic focus on successfully and in a way that is efficient developing new solutions for the commer- and forward-looking. Goals and results cial markets in the Nordic region and The goals and results of the business areas ­Germany, within the context of a European The business area, which operates through are discussed in the Directors’ Report and energy market with strong demand for re- Agder Energi Nett AS, is responsible for build- in Note 1 Segment Information to the con- newable energy. As of 2018, these ventures­ ing, operating and maintaining the transmis- solidated financial statements of the Agder are being marketed under the joint brand sion and distribution grid in Aust-Agder and Energi Group. Entelios. Entelios offers clean energy, cut- Vest-Agder. The company is an independent ting-edge expertise and technology that entity controlled by its own AGM and Board.

AGDER ENERGI ANNUAL REPORT 2018 9

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

MISSION, VISION AND VALUES

Agder Energi provides clean energy for a sustainable society, now and in the future.

Agder Energi’s vision is to be one of the leading companies in the Norwegian renewable energy sector.

The Group has defined its values as closeness, credibility, dynamism and innovation.

• Agder Energi shall be close to its customers and the region.

• Agder Energi shall gain credibility by keeping promises, both to third parties and within the company.

• Agder Energi shall be dynamic, with a conscious corporate strategy that helps it to implement projects and achieve its goals.

• Agder Energi shall promote innovation and creativity, so that its employees become more skilled and efficient, enabling them to help to grow and develop the Group.

Agder Energi Nett is collaborating with the research centre NORCE on intro- ducing sensor technology that will make it easier to detect rotten utility poles that need replacing. Technician Erik Lindekleiv of Agder Energi Nett (left) and researcher Boyan Yuan of NORCE take thermal images of utility poles and pass radio waves through them. The project is part-funded by the Research Council of Norway.

AGDER ENERGI ANNUAL REPORT 2018 10

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

HIGHLIGHTS 2018

Southern Norway experienced heavy snow The addition of a new generator at Skjerka power station, the construction of in January and February. Trees weighed ­Honna substation and upgrades to the distribution network in Åseral will increase down by snow outside the corridors that grid reliability and ensure that the area’s resources can be exploited even better. ­ are cleared alongside the grid caused When all of the sub-projects in the Åseral projects have been completed, they will ­power cuts in several parts of the Agder add 145 GWh of clean, renewable energy generation, equivalent to the annual ­region. This led to the biggest power ­consumption of around 7,500 households. ­outage since Agder Energi was founded. Agder Energi Nett is implementing several The storm “Knud” caused massive damage In November, LOS signed an agreement ­measures to improve reliability of supply to the electricity network in September. with the Coop on becoming the exclusive for customers. The number of customers without power electricity supplier to the organisation’s ­peaked at around 53,000, and in total 1.6 million members. LOS’s electricity In May Agder Energi sold 51% of the shares ­almost 78,000 of our 200,000 customers tariffs have been well received by Coop’s in Otera Infra to the contracting group were affected by power cuts of varying members all over Norway. Roadworks, a financially sound partner ­durations. Agder Energi Nett has never that complements our business and that is ­before suffered such extensive power cuts. In December Agder Energi brought three ­looking to grow. The aim is to improve of its energy market companies in Scandi­ Otera Infra’s profitability, ensure value crea- In September, Statkraft agreed to acquire navia and Germany together under the tion and safeguard jobs. The transaction Agder Energi’s 38% ownership interest in ­Entelios brand. Entelios offers clean was completed in August. the wind power developer Statkraft Agder energy, cutting-edge expertise and tech- Energi Vind DA. The company has two nology to industrial companies, busines- In June, Agder Energi sold the Honna trans- licensed­ projects in its portfolio. ses and public enterprises, so they can mission substationin Åseral to Statnett. lead the way in terms of climate-friendly Together with Microsoft, Agder Energi won energy solutions. In May, Agder Energi’s municipal share­ the Energy Efficiency Awards for its work holders adopted a new dividend policy for on using new technology to create innova- Agder Energi is involved in the “Electric the years 2018–2020. Dividends shall tive smart grid solutions. The aim is to use ­Region Agder”, which aims to make Agder ­represent 70% of the previous year’s under­ the electricity network more efficiently Norway’s first fully electric region. Agder lying net income under IFRS. The Group and to ensure a smarter grid for the future. Energi has started work on an innovation ­previously used NGAAP profit as a measure project to explore possible business models of underlying profitability. As a result of this Europe’s largest shore power facility for and opportunities that will arise if growing change in dividend policy, from using cruise ships was opened in the port of areas of society are electrified. Following NGAAP figures to underlying IFRS figures, Kristiansand in September. Agder Energi on naturally from this, tomorrow’s cities underlying performance will now be presen- Nett has played an important role in the are the theme for the Agder Energi Confe- ted as an adjustment to the IFRS figures. project. rence “The Next Generation – Electric City” that will be held in May 2019.

AGDER ENERGI ANNUAL REPORT 2018 11

IntroductrionIntroduction CorporateCorporate governance governance The TheAgder Agder Energi Energi Group Group AgderAgder Energi Energi AS ASCSR CSR III III < >

Now even the biggest cruise ships can turn off their engines in the Port of Kristiansand and use electric power instead. That’s after Agder Energi Nett, the Port of Kristiansand and the Danish company PowerCon in 2018 commissioned Europe’s largest shore power facility there. The system is an innovation and demonstration project part-funded by the EU.

AGDER ENERGI AND THE ENERGY INDUSTRY

AGDER ENERGI ANNUAL REPORT 2018 12

Introductrion Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

THE BIG PICTURE

­climate-friendly energy solutions, by offering them renewable energy, new technology­ and cutting-edge expertise. In Scandinavia, Entelios is one of the leading suppliers of electricity to commercial customers and in Germany Entelios is a leading provider of technological solutions that can make the electricity used by energy-intensive compa- nies available to various energy companies at a second’s notice. These companies sell the electricity on or use it to stabilise the electrical grid. What we are learning through Entelios will put us at the cutting edge of technology by 2020.

Traditionally, the electric power industry has 2018 was yet another exciting year for ­Agder Norway, the Norwegian electric power only changed slowly. This reflects the fact Energi. On a few occasions, a bit too exciting indu­stry and Agder Energi in particular are that the technology has been relatively for our liking: heavy snowfall, downed power in a wonderful position to benefit from the ­simple and many system components have lines and flooding, followed by a long, dry, changes taking place in energy markets. long useful lives. That is no longer the case. baking summer. I apologise for the fact that ­Almost all of the electricity generated in Now the pace of change is furious, driven by many people suffered power cuts as a result Norway is hydroelectric, and we have a lot of leaps in technology that are affecting the of the forces of nature, but equally I must it. Connecting ourselves to the continent, whole value chain – generation, distribution once again express my admiration of, and and in a few years to the UK as well, won’t and consumption. Energy companies that gratitude to, our staff and the teams who just ­increase grid reliability. It will also give want to succeed will need to understand the- worked round the clock to repair the damage us big business opportunities and enable us se changes and forge alliances with leading to the grid. to contribute to the joint European effort to technology providers, merging energy exper- create a more climate-friendly energy tise with technology expertise. Looking at the There will be more extreme weather events ­system. Agder, which is close to both the big picture, this will mean that energy compa- in the future. Climate change is affecting continent and the UK, occupies a parti­ nies will increasingly develop into technology people all over the world, often with far more cularly privileged location. companies. As such, future restructurings of dramatic consequences than in Norway. the electric power industry may equally well That is the background to the Paris Agree- In parallel with this, new technology is chan- involve industrial alliances between electri­ ment and previous treaties on climate ging energy markets and creating new busi- city and technology companies as traditional ­change, which aim to limit global warming ness models and markets. That is why Agder mergers between electricity companies. by phasing out all forms of energy that Energi has a longstanding partnership with ­produce greenhouse gases, which above all Microsoft that enables us to make better use Another part of the big picture is that Nor- means CO2. We have to decarbonise both of the electricity available in the network. way, the Nordic region and Europe are all the generation­ and consumption of energy. This partnership has been awarded a presti­ ­ closely integrated in a big European energy gious prize for innovation by the Alliance to market. Some people are unhappy that this As a result, both energy markets and energy Save Energy. Even more importantly, Statnett sometimes results in Statnett importing Eu- companies are changing. Oil is being phased has joined NODES, which we are developing­ ropean electricity prices. However, what we out as a heating fuel, and we are using less into an electronic marketplace for ­Europe are really importing when CO2 prices push coal to generate electricity. Meanwhile, the together with NordPool. Enova’s recent deci- electricity prices up is European climate electrification of society continues apace. sion to award grants of almost NOK 90 mil- change policy. Over time, that will lead to Wind and solar power are growing fast, not lion to three digitalisation projects where renewable energy sources outcompeting least in the European market that Norway is Agder Energi is playing an important role is fos­sil fuels, which will in turn reduce prices. a part of. But these energy sources depend another strong vote of confidence. We cannot and shouldn’t refuse to take part on the weather, so they need to be backed in this battle against climate change. up by more stable sources, such as hydro­ In 2018 we also took a bold step forward by electric power. For an electric power system bringing together three of our energy market of this kind to work, you need advanced companies in Scandinavia and Germany technology, especially digitalisation and ­under the Entelios brand. Entelios will help artificial­ intelligence. industrial companies, businesses and public Tom Nysted enterprises to lead the way in terms of CEO

AGDER ENERGI ANNUAL REPORT 2018 13

IntroductrionIntroduction CorporateCorporate governance governance The TheAgder Agder Energi Energi Group Group AgderAgder Energi Energi AS ASCSR CSR III < >

Agder Energi Vannkraft has built its first labyrinth weir at Hanefoss. This design makes the spillway crest longer, thereby increasing the flood discharge capacity. It will enable us to deal with the bigger flood events that may occur as a result of a wetter and wilder climate.

CORPORATE GOVERNANCE

AGDERAGDER ENERGI ENERGI ANNUAL ÅRSRAPPORT REPORT 20182014 14

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

CORPORATE GOVERNANCE

Statement of Compliance employer, with approximately 1,000 emplo­ tions are specified in the relevant internal In accordance with Section 3-3b of the yees. The Group’s core business consists guidelines, and there are separate internal Norwegian Accounting Act, Agder Energi of hydropower generation, energy manage- rules in place of the joint guidelines. has a duty to report on its corporate ment, electricity retailing and grid operation. gover­nance procedures. Agder Energi has Its other activities include contracting, dist­ 3. Equity and dividends chosen to follow the corporate gover- rict heating and venture capital investment. At 31 December 2018, the Group had NOK nance recommendations set out in the 3,526 million of equity, giving it an equity 9th edition of the Norwegian Code of Agder Energi has goals, strategies and ratio of 15.6%. The Board of Directors con- Practice published by the Norwegian Cor- risk profiles covering the whole Group, for siders it important for the Group to have a porate Governance Committee (NUES), each business area and subsidiary, and for capital structure that provides ­financial published on 17 October 2018. certain aspects of its operations. The stability, bearing in mind its stated credit Board’s review and assessment of the rating goal, strategy and risk profile. Agder Energi AS has issued bonds that goals, strategies and risk profiles follows are listed on Oslo Børs. Consequently, we an annual plan. The Group’s dividend policy reflects the have chosen to implement the Code of stated aim of giving shareholders a stable Practice in so far as we consider it rele- There is a more detailed description of the and predictable return on their investment vant and appropriate. Group’s business activities in a separate through cash dividends. The Group’s future section of this annual report. dividend policy will depend on parameters 1. Corporate Governance Statement such as the Group’s strategic priorities, ex- The adopted corporate governance prin- Corporate Social Responsibility (CSR) pected cash flow, investment plans, financ- ciples regulate the relationship between Section 3-3c of the Norwegian Accoun­ ing requirements, the need for adequate fi- the shareholders, Board of Directors and ting Act, the Norwegian Corporate Gover- nancial flexibility and debt-servicing ability. executive management of a company, as nance Committee’s Code of Practice and well as describing the relevant roles and the Global Reporting Initiative (GRI) all Equity raising reporting structures. establish rules on how Agder Energi must Equity increases shall be proposed by the fulfil its corporate social responsibility and Board and discussed by the AGM. The Each heading represents one topic covered communicate what it does. These Norwe- Board is not currently authorised to carry by the recommendations. Agder Energi gian and international guidelines all empha­ out equity increases. has chosen to adapt Sections 5, 6 and 8 sise the following four areas: human rights, to reflect its operations and ownership labour, the environment and anti-corrup- 4. Equal treatment of shareholders structure. Apart from this, Agder Energi tion. Agder Energi’s corporate social and transactions with related parties considers that it complies fully with the ­responsibility strategy sets out the Group’s For significant transactions between the Code of Practice. definitions, goals, plan of action, areas of company and shareholders, Board mem- responsibility and reporting structure in bers, key employees or any of their related Overseas entities rela­tion to CSR. parties, the Board shall obtain a valuation Agder Energi also owns overseas entities. from an independent third party. These entities comply with their national This annual report includes a separate rules, as well as following the Group section with more information about CSR 5. Shares and free negotiability guidelines on areas such as auditing and at Agder Energi. The Code of Practice recommends that internal controls. companies should not limit the ownership, Exemption from the Group’s joint guidelines negotiability or voting rights of shares. 2. Business activities The operations of some the subsidiaries in Agder Energi AS is governed by rules that Agder Energi’s purpose is defined in the the Group are very remote from, and have restrict the ownership of waterfall rights in company’s articles of association: “The little in common with, the core activities the Waterfall Rights Act. The articles of company’s purpose is to: exploit, produce of Agder Energi, and there are few syner- association state that only shareholders and sell energy; contribute to the safe and gies to be realised by integrating them who meet the conditions for being alloca­ efficient supply of energy; and exploit relat- more closely with the Group’s other ted indefinite waterfall licences are entitled ed, profitable business opportunities within ­activities. This may apply to companies in to own Class A shares. The company’s the energy and infrastructure sectors.” the Group’s development portfolio, sub- shareholders have also signed agreements sidiary groups or joint ventures. These that regulate the sale of shares. Agder Energi is one of Norway’s biggest companies are exempted from some of energy companies, as well as being a major the Group’s joint guidelines. Any exemp-

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

6. Annual General Meeting members are elected for a two-year term. “COSO Enterprise Risk Management – Inte­ The Code of Practice recommends enabling The Board members are presented in a grating with Strategy and Performance”, as many shareholders as possible to attend separate section of this annual report. Det­ which emphasises the link between risk the company’s Annual General Meeting, ails of who has attended Board meetings management and strategy. and enabling shareholders who cannot at- during the year can be found in Note 32 to tend to vote. This recommendation has not the consolidated financial statements. The Group is inevitably exposed to risks in a been implemented at Agder Energi. Under variety of areas throughout the value chain. the agreements between shareholders, the Entitlement of Board members to own The most important risks relate to market AGM is only attended by one representa- shares price movements, strategic investments, tive of the shareholder municipalities and The Code of Practice recommends that operational safety, the regulatory environ- one representative of Statkraft Industrial Board members be encouraged to own ment, ICT security and data protection. Holding. The Chair of the Board, CEO and shares in the company. This recommenda- external auditor shall also attend. The elec- tion has not been implemented at Agder In line with the Board’s guidelines, the tion committee and Board members are Energi. Under the company’s articles of Group performs an annual review of inter- also entitled to attend. association and the shareholders’ agree- nal controls and risk management in colla­ ment, neither Board members nor other boration with the external auditor. Risk as- 7. Election committee private individuals are entitled to own sessments and changes to the regulatory The articles of association specify that the shares in Agder Energi. environment are reported regularly to the company shall have an election commit- Board, and all subsidiaries produce an an- tee. It consists of five members, who are 9. The work of the Board nual self-declaration on their internal con- appointed for a two-year term. Under the The Board’s tasks are regulated by the trols, which also covers the ethical guide- current shareholders’ agreement, the muni­ Limited Liability Companies Act and other lines and corporate social responsibility. cipal shareholders can appoint three relevant legislation, the company’s articles members, while Statkraft can appoint two. of association and the Board guidelines. The company’s internal audit service helps The election committee nominates candi- The Board reviews its work and expertise the Board to exercise good corporate dates for the corporate assembly and for annually. gover­nance by providing an independent, the Board of Directors. unbiased assessment of the most impor- The Board appoints the CEO. The Board has tant risks facing the company and it has a The shareholders’ agreement contains cer- drawn up instructions for, and delegated mandate to communicate directly with the tain rules on the work of the election com- authority to, the CEO. Board and the Board’s audit committee. mittee, designed to ensure compliance with the stipulations of the agreement. Audit committee The company provides various channels In accordance with the Stock Exchange for whistleblowing, one of which is an ex- 8. Board of Directors, composition Regulations, the Board of Agder Energi has ternal one approved by the Norwegian and independence established an audit committee that assists Data Protection Authority. The composition of the Board of Directors and advises the Board in relation to its is designed to safeguard the collective super­vision of the Group’s financial report- There is a more detailed description of Agder inte­rests of the shareholders and meet the ing and the effectiveness of its internal­ Energi’s internal control and risk manage- company’s need for expertise, capacity control systems. ment systems in a separate section of this and diversity. The Code of Practice recom- annual report. mends that the Chair of the Board should Conflicts of interest and abstention be elected by the AGM. This recommenda- The Board shall ensure that Board mem- 11. Board fees tion has not been implemented at Agder bers and senior managers disclose any Members of the Board are paid based on Energi. Under the shareholder agreement, significant interests they have in matters their roles. Their fees are not profit-related. twelve people sit on the Group’s Board of being deliberated by the Board (even if No Board members are entitled to a pen- Directors. Four members, including the those interests do not require abstention). sion, options or termination compensation Chair and Deputy Chair, are elected at the from the company, apart from the entitle- proposal of the municipal shareholders, 10. Risk management and internal ments of the employee representatives in four members are elected at the proposal controls their capacity as employees. of Statkraft and four at the proposal of the Agder Energi integrates risk management, employees. The executive management is internal controls and internal auditing into Details of the fees paid to individual Board not represented on the Board. Board its corporate governance in line with members are presented in Note 32 to the

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

consolidated financial statements. The Group publishes quarterly financial re- disagreement between the auditor and the ports and other information for the benefit of executive management. Each year the au- 12. Management compensation its shareholders and external stakeholders. ditor also discusses the company’s internal Management compensation reflects the controls with the Board, including any Group’s guidelines on compensation. Two 14. Acquisitions and disposals weaknesses identified by the auditor and business area directors received a bonus The shareholders’ agreement defines the proposals for improvements. in 2018, based on an assessment of the pre-emptive rights of current shareholders results achieved against defined goals. in the event of shares being sold. The Group’s central finance function is The rest of the senior management team kept informed of any consulting, tax advice have no bonus agreements for 2018. The disposal and acquisition of the Group’s and other services provided by the external ownership interests and subsidiaries is Group auditor that are not related to the Details of the compensation of each indi- handled in accordance with the relevant normal auditing process. The external vidual member of the senior management authorisations at Agder Energi. Disposals Group auditor is responsible for constantly team are presented in Note 32 to the con- and acquisitions can take place as a result assessing his own independence. solidated financial statements. of the strategic decisions of companies in the Group or through the wholly-owned 13. Information and communication subsidiary Agder Energi Venture. Agder Energi satisfies all statutory re- quirements relating to financial reporting 15. External auditor and disclosure. The Group considers main- Ernst & Young was the Group’s external taining good, appropriate lines of commu- auditor in 2018. nication with its owners and external stake­holders to be a priority. Each year, the auditor presents an outline plan for the year’s auditing activities to The thirty municipal shareholders coordi- the audit committee. nate their activities through two forums established for this purpose: the owners’ The auditor attends the meeting at which meeting and the work committee. the Board reviews the annual financial statements. At the meeting, the auditor The municipal owners understand that the goes over any significant changes in the procedures for reporting financial informa- company’s accounting principles, key as- tion to Statkraft mean that the latter owner pects of the audit, calculations of signifi- is frequently updated before the munici- cant accounting estimates and all signifi- palities. cant issues where there has been any

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

ENTERPRISE RISK MANAGEMENT

RISK MANAGEMENT

At Agder Energi, risk management has for Strategy and Objective-Setting Review and Revision several years been an integrated part of Based on the Group’s corporate and risk In order to pick up on changes that are corporate governance, both at the strate- management strategies, all of the Group’s relevant to the company’s business, Agder gic and operational levels. “COSO Enter- business areas have drawn up business Energi has introduced an Early Warning prise Risk Management – Integrating with plans. These business plans include strate- system. This system is used to carefully Strategy and Performance” (2017) high- gic and operational goals, areas of priority monitor developments in the regulatory lights the importance of enterprise risk and risk assessments covering existing environment and markets in which the management in strategic planning and of activities and new business models. Areas Group operates, as well as technological introducing enterprise risk management that involve trading in financial markets developments. The information thus ob- throughout an organisation. There follows have special risk management strategies tained is used to continuously update risk a brief description of how COSO’s five and limits on risk exposure that reflect the assessments and in strategic and com- components have been implemented in Board’s appetite for risk. mercial decision-making procedures. the Agder Energi Group’s enterprise risk management system. Implementation of Risk Assessments and Risk management and performance is re- Risk Management viewed regularly at individual companies Governance and culture The Group’s risk management systems and at the Group level. As part of the Group’s In order to ensure that the instructions of deal with potential positive and negative overall progression, corporate governance the owners are followed, and that the outcomes related to the company’s strate- will be subject to continuous improvement Group is managed appropriately, the gic and operational performance. HSE has and development, in response to the compa- Board has established guidelines for its top priority and is always the first item on nies’ own initiatives, updated guidelines own activities, instructions at subsidiaries the agenda at management meetings, from shared functions and the results of in- and instructions and an authorisation both at a Group level and within the indi- ternal audits. ­matrix for the Group CEO. These docu- vidual companies. ments underpin the Group’s strategy, Information, Communication, and Reporting which in turn sets out goals and priorities Individual companies are responsible for In order to promote integrated corporate for the Group and its business areas. The identifying, prioritising and monitoring governance processes, the Group has imple- Board has also approved a general des­ their own risk exposures, and risk manage- mented a combined governance and infor- cription of its corporate governance model, ment at the operational level takes place mation management solution, which helps which together with the adopted risk man- across the organisation as an integrated to further integrate financial and risk man- agement strategy provides the basis for part of normal business activities. Compa- agement into management processes. The the executive management’s integrated nies report their risk assessments and risk system is used for internal communication risk management activities. management activities to the Group. within business areas and for communica- tion with the group management and The Board has adopted a set of core values The analysis of Agder Energi’s overall risk Board of Directors. and ethical guidelines for Agder Energi, exposure takes place at the Group level, which form the basis for the corporate cul- based on individual companies’ reports Uncertainties with respect to key figures, ture at the Group. This is disseminated combined with the strategic assessments of the Group’s financial exposures, overall across the Group through the HR strategy’s the senior management team, the technical risk assessments and external develop- management requirements and emphasis assessments of shared services and the ments are regularly reported to the man- on teamwork. Group auditor’s comments. Risk assess- agement and Board, who are notified ex- ments are included in reports to the Board. plicitly of any critical scenarios.

INTERNAL CONTROLS

Internal controls are an integral part of over- compliance will be achieved. There ­follows a ­internal controls at Agder Energi. all risk management procedures, and they description of how the quality management shall provide reasonable assurance that system, control mechanisms, audits and Internal control system goals relating to operations, reporting and whistleblowing channels promote good Internal controls at the company are

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

­implemented through clear guidelines and mechanisms that combine manual controls Whistleblowing procedures established processes. This is documented such as check lists, access controls such as The Group has several channels for whistle­ by the fact that governance documents electronic approval processes following the blowing, one of which is independent of have been made available to all employees four eyes principle and automatic notifica- the company. There are formal procedures through our quality management system tion systems such as position monitoring in place for dealing with whistleblower “THIS is how we do things at Agder Ener- for trading portfolios. ­reports. Such reports are treated in strict gi”, generally abbreviated to the first word confidence unless criminal conduct is invol­ of the Norwegian name – SLIK. In addition, all subsidiaries must submit an ved. Agder Energi has established proce- annual self-declaration on their internal dures that safeguard the rights of whistle­ Through SLIK, the full range of the Group’s controls. This is done through a common blowers. In view of the public spotlight that governance documents – from steering reporting format that makes it clear what has been put on sexual harassment, the documents through manuals to descrip- kinds of controls the Group expects its Group has given greater priority to raising tions of work processes – are easily acces- subsidiaries to implement. awareness within the Group of its ethical sible on the Group’s intranet “Energisk”. guidelines, standards and reporting sys- Subsidiaries in the Group implement SLIK Auditing tems/procedures. across the organisation through their own Agder Energi has an internal audit service, corporate governance systems with com- which assists the Board, senior manage- Agder Energi’s system for reporting un- pany-specific governance documents. ment team and business areas by provid- wanted incidents and suggested improve- ing an independent, unbiased assessment ments is available through several plat- Control mechanisms of the Group’s risk management proce- forms, including a mobile phone app and Agder Energi has established control mech- dures. The internal audit service’s mandate an online reporting tool. Here people can anisms for safety, security, emergency pre- and guidelines are approved by the Board, report and record nonconformities, obser- paredness and critical aspects of its busi- which also reviews the internal audit ser- vations, suggested improvements, acci- ness processes in order to prevent, or vice’s annual report and its audit plans. dents and near misses. The reports are rapidly correct, any nonconformities. Due analysed, and all High Risk Incidents (HRIs) to increasing levels of digitalisation, Agder The external auditor is chosen by the AGM, are investigated, with a view to limiting Energi has established an ICT model and and is responsible for the financial audit of potential consequences, ensuring that the platform with new, stricter security require- the parent company, Group and subsidiar- causes are uncovered and implementing ments. In the face of growing numbers of ies. Agder Energi has a Group-wide agree- measures for continuous improvement. climate-related events, checking and moni- ment with Ernst & Young, which must be toring weather data plays an important role used by all subsidiaries for the statutory in helping us to manage and adapt the re- audit. Companies in the Group’s interna- sources that we administer. For our internal tional and venture capital portfolios may procedures, we have established control use a different auditor.

RISK MANAGEMENT

The Group is inevitably exposed to risks in a from electricity sales being exposed to city sold through futures contracts is con- variety of areas throughout the value chain. electricity price risk and currency risk. tinuously adjusted, bearing in mind the The most important risks relate to market company’s price expectations and gener- price movements, strategic investments, Hedging strategies for the power genera- ating capacity. The sale of currency futures operational safety, the regulatory environ- tion portfolio are subject to limits on how also takes into account electricity price ment, ICT security and data protection. much power can be sold through futures hedging and the total risk associated with contracts and the results are closely moni- the generation portfolio. The hedging strat- Market risk tored. Agder Energi has built up a strong egy both reduces risk and makes a positive Agder Energi is exposed to significant team specialising in energy management, contribution to Agder Energi’s financial ­market risk through the generation and analysis and modelling. Subject to the performance. Electricity prices rose over trading of electricity, with its revenues above constraints, the amount of electri­ the course of 2018, and Agder Energi man-

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

aged to benefit from a significant propor- Operational safety element of the Group’s risk exposure. Agder tion of that increase. There are operational risks associated with Energi works systematically to understand all of the processes in the value chain. The how the regulatory environment is chang- Electricity retailing is considered a margin most important ones are the risk of injuries ing, exploit any available room for mano­ business and financial hedges are used to to the Group’s employees and third parties, euvre and make strategic choices. minimise the electricity price risk and cur- damage to power plants, distribution net- rency risk. works and other assets, negative impacts Agder Energi will need to adapt if it wants on the environment and climate, negative to remain a key player in the electric power Strategic investments impacts on the Group’s reputation and the industry, although we do not yet know the The Group is following an ambitious strat- risk of failures in administrative and man- exact nature and extent of those adapta- egy for meeting the changes facing the agement processes. There were a number tions. The Group is making the changes electric power industry, centred on greater of climate-related incidents in 2018, inclu­ needed to adapt itself to an industry in a digitalisation and exploiting renewable ding heavy snowfall, strong wind and ex- state of flux. This includes changes to its energy­ sources. Strategic risk is managed treme drought. Extreme weather and cli- technology, such as digitalisation and cloud through continuous improvement and mate-related incidents increase the computing, and to its culture, such as a inno­vation at existing business areas and challenges­ associated with grid reliability, management development programme fo- by developing new, sustainable business the safety of employees, contractors and cusing on continuous improvement, change models. This involves designing, and posi- the general public, and the profitability of management and teamwork. tioning ourselves in, new markets and busi- grid operation, power generation, energy ness models associated with high levels of management and energy retailing. Personal ICT security and data protection uncertainty. This additional risk is managed safety is always our very highest priority. In recent times, there has been a growing by using pilot projects and a gradualist ap- focus on ICT security and data protection, proach to increase our understanding, as Operational risk is managed through pre- both within the industry and more widely. well as through good risk asses­sment and ventive measures and procedures for re- Agder Energi continuously and systemati- portfolio management. sponding to incidents. Agder Energi partici- cally works to meet external requirements pates in the organisation “Kraftforsyningens and internal needs for the security and Agder Energi has a clearly stated goal for beredskapsorganisasjon” (KBO) as a power ­robustness of our ICT infrastructure. Over its credit rating, both to ensure that the generating company, district heating com- the course of the year, we have worked to company is managed well and to provide pany and grid operator. For the purpose of adapt ourselves to the GDPR, as well as access to credit markets. With the power risk management, Agder Energi has chosen performing various actions to ensure that sector currently going through a period of to establish contingency plans, training our ICT systems remain secure and stable. heavy investment, in power stations, grid exer­cises and preventive measures even at This will continue to be a priority going for- upgrades and new business opportunities, companies not covered by the KBO require- ward. Agder Energi has more investment oppor- ments. tunities than it is capable of pursuing. Port- folio management, scenario-based assess- Regulatory environment ments and long-term capital allocation are Big changes lie ahead for the electric power designed to encourage optimal use of industry. Changes in the regulatory environ- capital at the Group over time. ment and political decisions affect our room for manoeuvre and constitute a significant

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

CORPORATE SOCIAL RESPONSIBILITY

Agder Energi provides clean energy for a its decision-making­ processes and the Labour rights sustainable society, now and in the future. ­activities of its subcontractors. Agder Energi and its subcontractors shall comply with the eight fundamental Renewable energy is part of the solution­ Agder Energi has adopted a Group strategy ­conventions of the International Labour to the global crisis arising from climate and methodology that establish guidelines Organisation (ILO) on the right to organise, change, and electricity plays a key role in for the business areas’ activities with the right to collective bargaining and the society. Consequently, the Group’s core ­respect to CSR. elimination of forced labour, child labour business is inherently sustainable. Never­ and discrimination at the workplace. theless,we realise the importance of how Agder Energi also has a separate CSR we conduct our core business at Agder strategy for the Group as a whole, with The environment Energi. associated goals. Agder Energi’s CSR goals Each company within the Agder Energi are related to the ten basic principles Group draws up environmental goals for Agder Energi’s CSR goals: of the UN Global Compact. its operations, reflecting the nature of its Agder Energi is one of Norway’s largest business. Subcontractors are required to producers of renewable energy, and its The joint goals for the Group are imple- have procedures in place for environmen- CSR activities are designed to ensure mented by the individual companies, which tal protection measures. that its operations are run in a sustain also draw up company-specific goals. ble and ethical way. Agder Energi requires subcontractors Anti-corruption to take into account the Group’s CSR Agder Energi’s goal is that no form of active­ The Norwegian Accounting Act, Norwegian­ ­goals. or passive corruption shall take ­place within Corporate Governance Committee’s the Group’s business activities. Code of Practice and Global Reporting The joint Group CSR goals are: Initiative (GRI) all establish rules on how More information about the Group’s CSR Agder Energi must fulfil its corporate social Human rights activities can be found in the section of responsibility and communicate what Agder Energi and its subcontractors shall the annual report on CSR and in the CSR it does. These Norwegian and international conduct themselves in accordance with appendix for 2017 on www.ae.no. guidelines all emphasise the following the UN’s internationally accepted human four areas: human rights, labour, the rights conventions. The Group and its ­evironment and anti-corruption. Agder subcontractors shall never be complicit Energi integrates social and environ­ in the breach of human rights. mental considerations into its operations,

AGDER ENERGI ANNUAL REPORT 2018 21

IntroductrionIntroduction CorporateCorporate governance governance The TheAgder Agder Energi Energi Group Group AgderAgder Energi Energi AS ASCSR CSR III III < >

Removing bulbous rush at ­Beihølen Dam in Vennesla Municipality.­

BOARD OF DIRECTORS’ REPORT

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

DIRECTORS’ REPORT

The Agder Energy Group provides clean energy for a sustainable society, now and in the future. The Group’s activities comprise the generation, distribution and sale of energy,­ as­ well as providing energy-related services. Its vision is to be one of the lead- ing companies­ in the Norwegian renewable energy sector. Most of Agder Energi’s busi- ness is done in southern Norway, and the company has its head office in Kristiansand.

Under IFRS, the Group made a loss for the year of 198 million in 2018 (controlling inter- est’s share), compared with a NOK 487 million profit in 2017. Underlying net income under IFRS was NOK 874 million (controlling interest’s share), up from NOK 845 million in 2017. Agder Energi’s hydropower stations generated 8,868 GWh of clean energy in 2018 (2017: 8,812 GWh).

HIGHLIGHTS

Southern Norway experienced heavy snow ­adjusted net income under IFRS. Kristiansand in September. Agder Energi in January and February. Trees weighed Nett has played an important role in the down by snow outside the corridors that are In June, Agder Energi exercised its option project. cleared alongside the grid caused power to sell Honna transmission substation in cuts in several parts of the Agder region. Åseral to Statnett. This disposal freed up a In November, LOS signed an agreement This led to the biggest power outage since significant amount of capital. with the Coop on becoming the exclusive Agder Energi was founded. Agder­ Energi electricity supplier to the organisation’s 1.7 Nett has implemented several measures to The storm “Knud” caused massive damage million members. LOS’s electricity tariffs further improve reliability of supply for cus- to the electricity network in September. have been well received by Coop’s mem- tomers. The number of customers without power bers all over Norway. peaked at around 53,000, and in total In May, Agder Energi agreed to sell 51% of ­almost 78,000 of our 200,000 customers In December Agder Energi brought three of the shares in Otera Infra to Roadworks, a were affected by power cuts of varying its energy market companies in Scandina- financially strong, complementary partner dura­tions. Agder Energi Nett has never via and Germany together under the Ente- which is looking to grow its business. The ­before suffered such extensive power cuts. lios brand. Entelios offers clean energy, aim is to improve Otera Infra’s profitability, cutting-edge expertise and technology to ensure value creation and safeguard jobs. In September, Statkraft agreed to acquire industrial companies, businesses and pub- The transaction was completed in August, Agder Energi’s 38% ownership interest in lic enterprises, so they can lead the way in and resulted in a small gain for accounting the wind power developer Statkraft Agder terms of climate-friendly energy solutions. purposes. Since August, Otera Infra has Energi Vind DA. The company has two been classified as an associate. ­licensed projects in its portfolio. * The underlying IFRS figures take the Group’s IFRS ­profit and adjust it for unrealised gains and losses on financial instruments, material gains and losses on the In May, Agder Energi’s municipal share- In September, Microsoft and Agder Energi disposal of businesses or ownership interests in busi- holders adopted a new dividend policy for won the Energy Efficiency Awards for their nesses and changes in the way that negative resource rent carryforwards are calculated; see page xx for further the years 2018–2020. The new guideline is work on using new technology to create details. that 70% of the previous year’s underlying innovative smart grid solutions. The aim is net income under IFRS should be distrib- to use the electricity network more effi- uted as dividends. Agder Energi previously ciently and to ensure a smarter grid for used NGAAP to measure its underlying the future. performance, but partly due to the change in the dividend policy, underlying perfor- Europe’s largest shore power facility for mance will henceforth be presented as cruise ships was opened in the port of

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

FINANCIAL PERFORMANCE

Agder Energi’s operating revenues in 2018 ­Financial income rose by NOK52 million to once again fell in 2018. The average interest amounted to NOK 13,980 million, compared NOK 77 million, partly due to a positive con- rate was 2.7%, down from 2.9% in 2017. The with NOK 10,358 million in 2017. The main tribution from the settlement of a vendor Group had NOK 2,883 (2,372) million of un- reason for the NOK 3,622 million increase credit provided to Broadnet. A NOK 67 mil- restricted liquid assets and undrawn credit was higher energy sales due to higher elec- lion unrealised gain on interest rate swaps facilities. tricity prices. As well as higher turnover at was recognised in the income statement. the Group’s hydroelectric power stations, Interest on the Group’s debt portfolio was Cash flow from operating activities came to the generalised price increase resulted in NOK 243 (251) million. Lower investment in NOK 2,049 million, compared with NOK higher turnover at Entelios and LOS, which projects resulted in only NOK 18 (27) million 1,189 million the previous year. Underlying also operate in the electricity market. As a being capitalised as construction loans. The EBITDA was NOK 2,957 million, up from result of having higher volumes under man- net interest expense recognised in the in- NOK 2,597 million, due to high electricity agement, turnover also rose at the German come statement therefore came to NOK prices and higher EBITDA at the Hydroelec- energy market companies. 225 (224) million. tric Power business area. Some of the large, unrealised gains and losses on derivatives The Group made an operating profit of NOK The Group’s pre-tax profit amounted to NOK are cash items while others are not. The 967 (1,062) million, while its underlying ope­ 853 (848) million, and its tax expense was cash flow from operating activities for 2018 rating profit was NOK 2,298 (1,889) million. NOK 1,057 (598) million. The tax expense includes a positive contribution from the The main reason for the big difference bet­ consists of NOK 198 (208) million of income use of various forward and futures contracts. ween the two figures was large losses on tax and NOK 859 (390) million of resource Within its retail business, Agder Energi offers financial hedging instruments; see below. rent tax. The increase in resource rent tax customers various management products. was mainly due to higher spot prices, as well These typically involve the Group signing a In 2018 the hydroelectric power business as the fact that we have started using up our forward contract with the customer, which delivered strong results, with a strong oper- negative resource rent carryforwards. The is hedged by a futures contract in a financial ational performance, high electricity gener- introduction of new tax rates in 2019 resulted­ market. The positive impact will be reversed ation, significantly higher achieved prices in a NOK 23 million gain for 2018. by any fall in price or when the forward con- than in 2017 and strong cash flow. Operat- tract is settled. Changes in net working cap- ing profit was negatively affected by weak The net unrealised loss on derivatives of ital reduced cash flow by NOK 718 million. contributions from the Network business NOK 1,049 (719) million was the main This was mainly due to having to provide area, as a result of heavy snowfall in Janu- reason ­why Agder Energi made a net loss of more collateral for trading in cash-settled ary and the storm “Knud” in September, NOK 198 million (controlling interest’s electricity futures. and from parts of our German operations. shares) as opposed to net income of NOK 487 million in 2017. Underlying net income In recent years, Agder Energi has invested Operating profit was also negatively impact- under IFRS was NOK 874 million (controlling heavily in hydroelectric power and grid infra- ed by large losses on financial hedging in- interest’s share), up from NOK 845 million. structure. This continued in 2018. Net invest- struments. Under IFRS, changes in the value ments amounted to NOK 1,102 million in of these contracts are recognised through Capital structure and cash flow 2018, against NOK 1,293 million the previ- profit or loss as they arise. Forward electric- Agder Energi’s assets had a book value of ous year. NOK 1,397 (1,348) million was in- ity prices rose significantly in 2018. For the NOK 22,616 million at the close of 2018, vested in property, plant and equipment and years 2019–2021, the increases were in the compared with NOK 20,831 in 2017. Part of in intangible assets. In addition, NOK 92 (99) range 29–85%. These price increases have the increase was due to heavy investment million of investments in grid infrastructure led to unrealised losses of NOK 1,357 (827) in the Hydroelectric Power and Network were paid for by customers. On the state- million on our hedging portfolio, and they business areas, and the carrying value of ment of cash flows, investments are present- are the main reason for the big difference our property, plant and equipment was NOK ed gross, with customer payments included between the reported and underlying perfor- 15,171 (14,599) million at the close of the under net cash provided by operating activi- mance. Meanwhile, the value of the electric- year. As a result of the IFRS loss, negative ties. 91% of the investments in property, ity generation hedged has risen by an equi­ remeasurements of pensions and dividend plant and equipment related to the Hydro- valent amount. However, this rise in value is payments, the Group’s book equity fell by electric Power and Network business areas. not recognised in the income statement. NOK 1,039 million over the course of 2018 to NOK 3,526 (4,565) million. This gave a Receipts from the sale of investments came Net financial expenses fell NOK 100 million year-end equity ratio of 16% (22%). to NOK 481 million, compared with NOK from NOK 214 million to NOK 114 million. 237 million in 2017. The biggest contribu- The main reasons for the reduction were At the end of the year, the Group had NOK tion came from the sale of Honna substa- higher financial income and an increase in 9,260 (9,240) million of interest-bearing lia­ tion to Statnett in June, but cash received unrealised gains on interest rate swaps. bilities. The interest rate on the loan portfolio from the sale of subsidiaries, associates and

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

financial assets once again helped to reduce Proposed dividends poses that Agder Energi AS’s net income net cash used in investing activities in 2018. Agder Energi’s dividend policy states that for the year be appropriated as follows: In 2018, the sale of 51% of the shares in the proposed dividend for 2018 should be Otera Infra, receipt of the final settlement for set based on the Group’s underlying net in- (Amounts in NOK million) Bjerkreim Vind and the settlement of a ven- come under IFRS in 2017. This is to ensure Allocated for dividends 592 dor credit provided to Broadnet were some that shareholders receive a predictable divi- Transferred to other reserves 204 of the items that made a positive contribu- dend income. The guideline dividend payout Total allocations 796 tion to cash flow. ratio is 70%. The controlling interest’s share of underlying net income under IFRS in 2017 Going concern assumption NOK 608 (610) million in dividends were was NOK 845 million. Based on that, the In accordance with the Norwegian Account- paid out to controlling and non-controlling Board of Directors proposes a dividend pay- ing Act, the Board of Directors confirms that interests. Net cash provided by operating out of NOK 592 million for the 2018 finan- the going concern assumption is justified, activities less dividends therefore came to cial year. and that the annual financial statements NOK 1,441 (579) million. As a result, net in- have been prepared on that basis. vestment for the year was financed by cash The net income for the year of the parent flow from operating activities. company Agder Energi AS was NOK 796 (935) million under NGAAP. The Board pro-

BUSINESS AREAS

Agder Energi is organised as a corporate from NOK 1,752 million in 2017, thanks to the Åseral Nord project, which involves build- group, with Agder Energi AS as the parent net energy sales rising from NOK 2,692 ing a new dam at Langevatn and refurbish- company. The Group reports its business million to NOK 3,404 million. Net energy ing the northern part of the transfer tunnel ­areas in line with how the management team sales benefited from an increase in the spot between Langevatn and Nåvatn. Other big makes, reviews and evaluates its decisions. It value of electricity generated from NOK investments included the new generator at has four business areas: Hydroelectric Power, 2,452 million to NOK 3,639 million due to Skjerka power station, the refurbishment of Network, Energy Management and Market- higher electricity prices. Losses on conces- Hanefoss Dam and the refurbishment of ing. The financial statements of the business sion power and contracts for physical deliv- Evenstad power station. Beyond this, invest- areas follow Norwegian Generally Accepted ery signed before 1992 came to NOK 212 ments comprised reinvestments in the pow- Accounting Principles (NGAAP), as that is (111) million, while the contribution from er stations and dams at wholly-owned and what is used for internal corporate gover- electricity price and interest rate hedges part-owned installations nance purposes. fell from a gain of NOK 343 million to a loss of NOK 212 million. Nevertheless, positive The Network business area Hydroelectric Power business area contributions from areas such as energy The Network business area is responsible This business area is responsible for develop- trading and the sale of guarantees of origin for developing, operating and maintaining ing, operating, maintaining and refurbishing meant that the prices achieved were roughly the transmission and distribution grid in the Group’s hydroelectric power stations, the same as spot prices. Aust-Agder and Vest-Agder. This business and it is one Norway’s largest producers of area had NOK 1,358 (1,335) million of oper- hydroelectric power. The business area owns, As well as paying ordinary income tax, the ating revenues in 2018. However, operating either directly or through joint arrangements, hydroelectric power business also pays re- profit fell by NOK 255 million to NOK 16 49 hydroelectric power stations. source rent tax. When calculating resource (271) million. rent tax, gains and losses on cash-settled 8,686 GWh (8,812 GWh) of power was gen- contracts are excluded. The resource rent This was due to heavy snowfall in January erated in 2018. That is around 7% more than tax expense rose from NOK 285 million to and February, as well as the storm “Knud” the Group’s average production of 8,100 NOK 824 million. The increase was due to in September. Those two things caused the GWh. Reservoir reserves fell from 4,400 higher spot prices for electricity generated, most extensive power outage since Agder GWh at the start of the year to 3,200 GWh a higher tax rate and the fact that the busi- Energi was founded. Together they led to at the end of it. The average spot price in ness area has started using up its negative increased expenses related to fault resolu- Agder Energi’s pricing region (NO2) was 41.5 resource rent carryforwards. The business tion and compensating customers, as well øre/kWh (26.9 øre/kWh), up 54% over 2017. area’s net income for the year amounted to as a NOK 245 million loss of revenues. The NOK 950 million (NOK 996 million). cost of compensating customers and fault The turnover of the business area was NOK resolution was NOK 122 million. The loss of 3,703 (2,893) million in 2018. It made an NOK 568 (466) million was invested in revenues was due to KILE (quality-adjusted operating profit of NOK 2,358 million, up 2018. The single biggest investment was income cap for energy not supplied). The

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

Norwegian Water Resources and Energy mising distributed generation and selling The Marketing business area Directorate sets an income cap for distribu- demand response services. The Marketing business area’s turnover tion system operators. In the event of a was NOK 2,434 (2,071) million in 2018, power cut, the income cap is reduced to The business area’s turnover was NOK 7,693 while its operating profit was NOK 95 mil- reflect the costs inflicted on customers by (5,208) million in 2018, up NOK 2,485 mil- lion (loss of NOK 4 million). The main com- the power outage. As a result of the ex- lion from 2017. The increase was the result of panies in this business area are LOS, Otera treme weather events, Agder Energi’s in- higher turnover at Entelios’ Nordic business, Ratel and Agder Energi Varme. The Group’s come cap was reduced by NOK 123 million. due to the general rise in electricity prices. venture capital portfolio also forms part of Without the extreme weather events, the Volumes were roughly unchanged from the the business area. business area’s performance and efficiency previous year. The companies engaged in would have been close to expectations. the Germany electricity market also contrib- In 2018, the electricity retailer LOS’s turn- uted significantly to turnover growth, thanks over was NOK 942 million, compared with In spite of the high KILE adjustment, the to growth in the volumes they managed. The NOK 670 million in 2017. The increase was business area’s revenues were roughly un- business area made an operating loss of mainly due to the general rise in electricity changed. This was due to an increase in both NOK 111 million, compared with a profit of prices. The company made an operating the cost of transmission losses, reflecting NOK 31 million in 2017. profit of NOK 35 million, down from NOK higher electricity prices, and transmission 56 million. The decline in profit was due to network tariffs. Any increase in these costs The German business made an operating rapid and relatively large fluctuations in the is compensated for through an equivalent loss of NOK 130 (12) million. Part of its busi- prices of electricity and electricity certifi- rise in the income cap. ness involves managing renewable energy cates, which resulted in lower margins. generation from small electricity genera- The business area invested NOK 673 (776) tors. The weak performance was primarily The Otera companies supply contracting million in 2018, of which NOK 492 (590) the result of volume growth combined with services for the installation, operation, million related to investments in new proj- unfavourable market movements and the maintenance and servicing of electricity ects. NOK 199 (306) million was invested in loss of expected Eisman compensation. The and transport infrastructure in Norway and the smart meter project. Including NOK 92 entitlement to Eisman compensation can Sweden. In 2018, their combined turnover (99) million of customer contributions, arise at times of high electricity generation was NOK 953 (963) million. They made an gross investment in the business area was and limited access to the grid. At times like operating profit of NOK 40 million, com- NOK 765 (875) million. that, electricity generating companies can pared with a NOK 65 million loss the previ- be disconnected from the grid. This leads ous year. In August Agder Energi sold 51% The Energy Management business area to a discrepancy between reported electri­ of the shares in the Norwegian business, The Energy Management business area in- city generation and the volume actually Otera Infra, to Roadworks. Otera Infra is in- cludes Agder Energi Kraftforvaltning, the supplied to the grid. Agder Energi seeks to cluded in the figures for Otera up to the Entelios companies and Nordgröön. cover the discrepancy by buying electricity transfer date, but from August onwards it is through the regulating power market. Any treated as an associate. Agder Energi Kraftforvaltning provides the discrepancies that are not covered cause services of scheduling and hedging the hy- an imbalance, which normally results in a The turnover of Otera’s Swedish business, dropower portfolio to the Hydroelectric loss. In its financial statements for 2017, Otera Ratel, was NOK 737 (560) million in Power business area. In 2018 the company Agder Energi assumed that this loss would 2018, while its operating profit was NOK 45 achieved record profits from energy trading. be covered by the system operators through million (loss of NOK 33 million). The financial results of this are included un- so-called Eisman compensation. The rules der the Hydroelectric Power business area. on how this should be calculated were not Agder Energi Varme supplies district heating clear at the time. In June 2018, regulations and cooling to homes and commercial build- In the Nordic region, Entelios is one of the were issued stipulating how compensation ings, mainly in Kristiansand. The energy it leading energy retailers. In Norway, Entelios shall be calculated from 2019 onwards. In supplies makes a significant contribution to is the leading supplier of electricity to the view of those regulations, Agder Energi has ensuring that the town’s grid has sufficient commercial market. Entelios also has a sec­ in its financial statements for 2018 as- spare capacity. The company’s turnover urities trading licence for the Nordic coun- sumed that no compensation will be given was NOK 117 (108) million in 2018, while its tries and significant turnover in the Swedish for losses arising in 2018 and earlier years. operating profit was NOK 20 (20) million. market, as well as customers in Denmark That is the main reason for the weak oper- The volume of billable energy supplied in and Finland. ating performance. 2018 was 144 GWh (135 GWh), mainly due to customer growth and lower tempera- Agder Energi’s activities in the German Entelios’ operations in the Nordic region tures than the previous year. As in 2017, market comprise Entelios’ German business made an operating profit of NOK 33 (63) volumes were negatively affected by the and the company Nordgröön. The business million. The Norwegian business was respon- weather being milder than normal. Reve- involves managing renewable energy, opti- sible for the decline in profit. nues from district cooling were NOK 9 (7)

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million in 2018. Our hedging of energy con- are grouped in the company Agder Energi with a positive impact from the acquisition tracts made a negative contribution. The Venture. The value of the companies in the of Systempartner, completed in January business area invested NOK 17 (37) million. portfolio rose in 2018. The biggest valua- 2018. There were no other acquisitions or tion gain was for Netsecurity. This reflected disposals of companies in the portfolio in The Group’s venture capital investments a strong underlying performance combined 2018.

EMPLOYEES AND SKILLS DEVELOPMENT

Health and safety there were 8 (22) apprentices who worked In 2018, the Group’s sickness absence rate A lot of effort has been put into making at Agder Energi. The reduction was due to was 3.6% (3.5%). Of that, 1% (1%) was Agder Energi a safe place to work where the sale of Otera Infra. short-term absence and 2.5% (2.4%) was injuries don’t occur, and into creating a long-term absence (more than 16 days). good working environment. We have a The parent company had 159 (162) perma- Total sickness absence has been relatively systematic­ continuous improvement pro- nent employees at the end of the year. unchanged for the past six years. The gramme in place for health and safety. In Group aims to have a sickness absence order to make further progress towards our Women make up 25% (20%) of the Group’s rate below 3%, and for some time we have goal of avoiding occupational injuries, in employees, and 41% (41%) of the parent been working hard to improve the way in 2019 we are providing safety culture train- company’s. Women make up 22% (21%) of which we deal with absences. ing to all employees at Agder Energi Nett, the Group’s managers. The senior manage- Agder Energi Vannkraft and Agder Energi ment team has two women and five men. 7 (7) occupational accidents resulting in Varme. Root cause analysis is performed in Women occupy 42% (42%) of the seats on injury were recorded in 2018. Of these, 4 the event of incidents with a high risk of the Board. (4) resulted in total lost time of 43 (146) injury. The aim is to learn more from inci- days. The accident figures are equivalent dents that could have led to injuries, and to We recruit, develop and deploy human re- to a lost time injury frequency (number of share knowledge across the Group. sources in the way that is best for achiev- LTIs per million work hours) of 2.2 (2.1), a ing the Group’s goals. This involves offering total injury frequency (number of injuries, Staff and organisational structure competitive salaries, ongoing training, con- whether or not they resulted in lost time, At the close of 2018, the Group had 1,005 tinuous improvement and a good and safe per million work hours) of 3.8 (3.7) and an (1,210) full-time and temporary employees, working environment, as well as providing injury severity rate (number of days lost representing 977 (1,163) full-time equiva- strong leadership. per million work hours) of 24 (71). None of lents. The reduction since 2017 is mainly the incidents can be classified as serious. due to the sale of Otera Infra. During 2018,

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Renewable energy is part of the solution to In its efforts to meet its responsibilities to dards. The GRI rules changed in 2018, and the global crisis created by climate change, society, Agder Energi bases its work on there is now a clearer requirement to anal- and as one of Norway’s biggest producers globally recognised initiatives and stan- yse which sustainability topics are material of renewable energy, the Group’s core busi- dards, including the UN Global Compact, for the Group itself, and which ones are ness is inherently sustainable. Agder Energi which promotes sustainable and socially important to the Group’s stakeholders. The shall carry out all of its activities in a sus- responsible policies, and the conventions 2018 sustainability report has been updated tainable, ethical and socially responsible of the International Labour Organisation to reflect this. way. Several governance documents have (ILO). The Global Compact is based on ten been drawn up to put our sustainability fundamental principles relating to human The general information at the Group level principles into practice, and the business rights, labour standards, the environment is presented in the section of the annual areas are responsible for carrying out work and anti-corruption. report on sustainability. More detailed on sustainability, including setting environ- company-specific information can be mental goals and implementing measures Each year, Agder Energi reports on its work found in a separate sustainability report to achieve those goals. on CSR and sustainability in accordance published on ae.no. with the Global Reporting Initiative stan-

RISK MANAGEMENT AND INTERNAL CONTROLS

Risk management and internal controls corporate strategy sets out goals and pri- management’s integrated risk management The Board has established general guide- orities for the Group and its business areas, activities, together with the adopted auth­ lines for corporate governance. The Group’s which provide the basis for the executive orisations and risk management strategy.

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Based on the Group’s corporate and risk ­resources that we administer. For our in- management of its capital structure is its management strategies, all of the Group’s ternal procedures, we have established long-term credit rating. Agder Energi’s clearly business areas have drawn up business control mechanisms that combine manual stated goal is to have a credit rating of BBB+ plans. These business plans include strate- controls, access controls and automatic or higher, and it has been given a credit rating gic and operational goals, areas of priority notification systems. In addition, all sub- of BBB+ with a stable outlook by Scope Rat- and risk assessments. Areas that involve sidiaries must submit an annual self-dec- ing. Portfolio management, scenario-based trading in financial markets have their own laration on their internal controls. Risk assessments and long-term capital allocation risk management strategies and limits on management and internal controls at are designed to encourage optimal use of risk exposure. ­Agder Energi are described in greater de- capital at the Group over time. tail in this report’s section on “Integrated The Group’s risk management systems deal risk management”. Operational safety with potential positive and negative out- The most important operational risks are the comes in relation to the company’s goals. Risks risk of injuries to the Group’s employees and Individual companies are responsible for The most significant risks relate to market third parties, damage to infrastructure and identifying and monitoring their own risk price movements, strategic investments, other assets, negative impacts on the envi- expo­sures, and risk management at the op- operational safety, the regulatory environ- ronment and climate, negative impacts on erational level takes place across the organ- ment, ICT security and data protection. the Group’s reputation and the risk of fail- isation as an integrated part of normal busi- There follows a brief description of these ures in administrative and management pro- ness activities. General analysis of Agder risks. Risks and risk management are de- cesses. There were a number of climate-­ Energi’s overall risk exposure takes place at scribed in greater detail in this report’s related incidents in 2018, including lots of the Group level and is reported to the Board. section on “Integrated risk management”. snow, strong wind and drought. Extreme weather and climate-related incidents in- In order to promote integrated corporate Market risk crease the challenges associated with grid governance processes, the Group has im- Agder Energi is exposed to significant reliability, the safety of employees, contrac- plemented a combined governance and market risk through the generation and tors and the general public, and operating information management solution, which trading of electricity, with its revenues profitably. Personal safety is always our very helps to further integrate financial and risk from electricity sales being exposed to highest priority. management into management processes. electricity price risk and currency risk. Hedging strategies for the power genera- Operational risk is managed through proce- Internal controls at the company are imple­ tion portfolio are subject to limits on how dures governing activities at operating units, mented through clear guidelines and esta­ much power can be sold through futures and through contingency plans. For the pur- blished processes that are made available contracts and close monitoring of down- pose of risk management, Agder Energi has to the employees through our quality man- side risks. Each year, the Board assesses chosen to establish contingency plans, train- agement system SLIK. Through SLIK, all of the results achieved by the hedging strate­ ing exercises and preventive measures even the Group’s governance documents – from gies. Electricity retailing is considered a at companies not covered by “Kraftforsynin- steering documents through manuals to margin business and financial instruments gens beredskapsorganisasjon” (KBO). descriptions of work processes – are avail- are used to minimise the electricity price able on the Group’s intranet. Subsidiaries risk and currency risk. Regulatory environment in the Group implement SLIK across the Changes in the regulatory environment and organisation through their own corporate Strategic investments political decisions affect our room for governance systems with company-spe- The Group is following an ambitious strate- ­manoeuvre and constitute a significant ele- cific governance documents. gy for meeting the changes facing the elec- ment of the Group’s risk exposure. Agder tric power industry, centred on greater digi- Energi works systematically to understand Agder Energi has established control mech- talisation and exploiting renewable energy and adapt itself to changes in the regula- anisms for safety, security, emergency pre- sources. This involves designing, and posi- tory environment. This includes producing paredness and critical aspects of its pro- tioning ourselves in, new markets and busi- Early Warning reports that describe exter- cesses in order to prevent, or rapidly ness models associated with high levels of nal developments and uncertainties, includ- correct, any nonconformities. Due to in- uncertainty. This risk is managed by using ing their potential impacts on the Group, creasing digitalisation, Agder Energi has pilot projects, partnerships and a gradualist and helping to determine the Group’s established an ICT model and platform approach to increase our understanding, stance on issues and processes relating to with new, stricter security requirements. In as well as through good risk assessment the regulatory environment. These stances the face of growing numbers of climate- and portfolio management. underpin Agder Energi’s response to con- related events, checking and monitoring sultation processes, and provide a guide for weather data plays an important role in Credit rating any internal adjustments that need to be helping us to manage and adapt the The most important target for the Group’s carried out by the Group.

AGDER ENERGI ANNUAL REPORT 2018 28

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

ICT security and data protection robustness of ICT infrastructure. Over the sure that our ICT systems remain secure Agder Energi continuously and systemati- course of the year, work has been done to and stable. cally works to meet external requirements adapt the company to the GDPR, and var- and internal needs for the security and ious actions have been carried out to en-

SHAREHOLDER INFORMATION

The company’s share capital consists of who meet the conditions for being allocated such as pre-emptive rights for existing share- 2,700,000 shares with a face value of NOK indefinite waterfall licences under the rele- holders in the event of shares in the compa- 670. Of these, 1,800,000 are class A shares vant current legislation. ny being sold. In addition, the municipal and 900,000 are class B shares. Class A shareholders have agreed to coordinate their shares can only be owned by shareholders A shareholders’ agreement regulates matters votes at the AGM.

CORPORATE GOVERNANCE

Agder Energi uses the Norwegian Code of Matters relating to corporate governance Practice published by the Norwegian Corpo- are described in greater detail in a separate rate Governance Committee (NUES), within section of this annual report. the framework set by the company’s organ- isational structure and ownership.

RESEARCH AND DEVELOPMENT

The Group’s investment in R&D and innova- Agder Energi is participating in HydroCen planning and the use of machine learning tion shall lay the foundations for long-term, with other energy and industrial compa- to control hydroelectric power stations. The profitable growth and promote develop- nies as well as several research institutes. results so far have been promising. The ment activities to increase the potential of HydroCen is a Centre for Environment- Group also cooperates with the university the core business. friendly Energy Research backed by the in other areas, such as on Master’s degrees Research Council of Norway. The centre related to the Group’s operations. Through The pilot partnership with Microsoft that be- focuses on research relating to hydroelec- its ownership interest in Teknova, which has gan in 2016 has now evolved into a bigger tric power, including ways to reduce any now become part of NORCE, the Group is development programme focusing on esta­ environmental impacts. The Group also supporting the region’s research­ community blishing business models driven by new participates in CINELDI, another research working in renewable energy. technology and changes to electric power centre supported by the Research Council systems. This programme is being pursued of Norway. CINELDI is developing solutions Agder Energi is involved in the “Electric through the wholly-owned subsidiaries for the flexible and intelligent electrical ­Region Agder”, which aims to make Agder ­Agder Energi Fleksibilitet and Enfo, as well distributions systems of the future. In ad- Norway’s first fully electric region. Agder as through the part-owned subsidiaries dition, Agder Energi is involved in several Energi has started work on an innovation NODES and NODES-Tech. The NODES one-off projects that are part-funded by project to explore possible business models companies are owned jointly with Nord- the Research Council of Norway’s ENER- and opportunities that will arise if growing Pool. The programme received NOK 5 mil- GIX programme. areas of society are electrified. Following lion of SkatteFUNN credits in 2018, and is on naturally from this, tomorrow’s cities participating in demo projects that have In March 2017, the University of Agder are the theme for the Agder Energi Con- been awarded approximately NOK 60 mil- opened a new centre for research into ference “The Next Generation – Electric lion of grants from Enova for the period ­artificial intelligence. Agder Energi is colla­ City” that will be held in May. 2019–2021. borating with the centre on production

EVENTS AFTER THE REPORTING PERIOD

There have been no incidents in 2019 that have a significant impact on the financial statements for 2018.

AGDER ENERGI ANNUAL REPORT 2018 29

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

OUTLOOK

Hydroelectric Power and Energy The EU’s energy and climate change poli- of climate change, the value of renewable Management business areas cies are driving changes in the electric energy increases. Over the course of 2018, Electricity prices in Norway have fluctuated power industry and growth in wind and the price of guarantees of origin rose signifi- a great deal over the past 15 years, with ­solar power is pushing up the proportion cantly. The Energy Management business the average price in the NO2 pricing region of renewable energy in the European power area is well positioned to offer value-adding being approximately 29 øre/KWh. After mix. A higher share of renewable genera- management services in this market. reaching a low in 2015, prices have risen tion will push European electricity prices significantly for three years. Over the short down. The price of fossil fuels and CO2 are The Network business area term, temperatures and precipitation have nevertheless expected to be important Agder Energi Nett was hit by several ex- a big impact on electricity prices, but elec- factors for prices, and coal, gas and CO2 treme weather events in 2018. At the start tricity prices are also closely linked to the prices will therefore continue to strongly of the year, heavy snowfall combined with CO2 price and the other costs of generat- influence electricity prices. temperatures around freezing led to signifi- ing electricity using coal and gas. In 2018, cant power cuts in Agder. A large number of the average electricity price in the NO2 The Energy Management business area power outages were caused by trees snap- pricing region was 41.5 øre/kWh (26.9 øre/ has brought its customer-facing business ping or falling onto power lines. In Septem- kWh), up 54% over 2017, with all of the in the Nordic region and Germany together ber a similar situation was caused by strong above factors contributing to the rise. under the Entelios brand. The similarities winds that reached hurricane strength in between these markets and their comple- parts of region. These two events gave rise Forward prices for electricity indicate that mentary characteristics will provide oppor- to around NOK 245 million of additional ex- electricity prices will be lower than in 2018 tunities for synergies. The Entelios busi- penses before tax, and we expect the distri- over the coming three or four years. Mean- ness in the Nordic region manages 30 TWh bution system operator’s financial perfor- while, a lack of precipitation has left the of electricity, and through services includ- mance to be significantly stronger in 2019. Group with lower hydrological resources ing energy management it added signifi- (water and snow) than normal. Assuming cant value for its customers in 2018. The In order to further improve reliability of normal precipitation levels over the com- markets in which Entelios operates are supply, extra financial resources have been ing months, we expect hydroelectric power challenging, and the business is developing allocated to deal with priority areas over generation and turnover from energy sales its expertise and systems in order to con- the coming years. This package of mea- to be lower in 2019. tinuously improve its competitive position. sures includes a number of projects, includ- ing clearing more trees and increasing Analyses of the electricity market forecast A growing proportion of non-dispatchable ­investment in the grid. that electricity consumption in the Nordic generation is increasing the need for flexible region will increase between now and resources in the European power system, and The Norwegian distribution system industry 2030, due to higher demand from indus- the business area participates in the markets is changing. New, automated meters and new try, the electrification of the transport sec- for demand response, short-term trading and digital solutions make it possible to operate tor and data centres. However, the amount managing renewable energy generation in distribution systems more efficiently and reli- of electricity generated will also rise, par- Germany. ably. This, in combination with an increas- ticularly at wind farms, increasing the ingly electrified society, will lead to the devel- overall electricity surplus of the Nordic The regulatory framework for managing opment of new operating models that make countries over the same period. Viewed in renewable energy generation and demand increasing use of available demand response. isolation, this will put downward pressure response did not develop in line with our The ongoing electrification of the transport on electricity prices. expectations in 2018, for example because sector will be another important driver of coal-fired power stations were allowed to change. However, interconnectors are making the take big positions in flexibility markets. Norwegian grid more integrated with the Germany has taken the decision to start The company believes in continuous im- rest of Europe. According to the Norwe- closing down its coal-fired power stations provement, and will continue working on gian Water Resources and Energy Direc- from 2020 onwards, which we expect to several strategic projects to prepare for fu- torate’s analyses, price differences bet­ increase the profitability of these markets. ture changes and requirements affecting ween countries may decline. Having more Clarification of the regulatory framework both technology and the market. The follow- international interconnectors will probably for managing renewable energy genera- ing development projects will be particularly help to smooth out seasonal price fluctua- tion will enable companies to make the important in the coming period: “Position- tions and in the long run hydrological con- adjustments needed to achieve a balance ing oneself for the future power grid – DSO”, ditions should have less of an impact on between risk and reward. “Power-based distribution tariffs”, “R&D electricity prices. Future distribution system operators” and As the world becomes increasingly conscious “Geographic expansion of power grids”.

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

The Marketing business area The prospects of the companies in our Marketing business area will depend on changes to the regulatory framework, greater customer-­ orientation and technological developments.

The electricity retailer LOS expects to achieve growth through digitalisation, value-added products and services and greater use of strategic partners. In the autumn of 2018, LOS signed a partnership agreement with COOP that gave LOS a significant number of new customers all across Norway.

We expect our contracting business Otera to achieve growth in its main markets – electrical infrastructure and transportation – in both Norway and Sweden. This is creating opportunities, but new players are entering the market and competition is increasing in some areas. The company will therefore have to focus on operational efficiency, adapting to the market and profitable growth in new areas.

Agder Energi Varme expects continued growth from urbanisation and the densification of towns.

Kristiansand, 2. April 2019 Board of Directors of Agder Energi AS

Lars Erik Torjussen Chair

Tine Sundtoft Jill Akselsen Leif Atle Beisland Deputy chair Board member Board member

Jon Vatnaland Marit Grimsbo Asbjørn Grundt Board member Board member Board member

Siw Linnea Poulsson Johan Ekeland Sverre Hallvard Hamre Board member Board member Board member

Oddvar Emil Berli Gro Granås Tom Nysted Board member Board member CEO

AGDER ENERGI ANNUAL REPORT 2018 31

IIntroductionntroduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

In 2018 LOS and Grønn Kontakt signed a partnership agreement covering Grønn Kontakt’s EV charging network throughout Norway.

AGDER ENERGI ANNUALANNUAL REPORTREPORT 20182018 32

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

BOARD OF DIRECTORS

Lars Erik Torjussen Tine Sundtoft Jill Akselsen

Leif Atle Beisland Jon Vatnaland Marit Grimsbo

Asbjørn Grundt Siw Linnea Poulsson Johan Ekeland

Oddvar Emil Berli Sverre Hallvard Hamre Gro Granås

AGDER ENERGI ANNUAL REPORT 2018 33

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

Declaration pursuant to Section 5-5 of the Securities Trading Act

We confirm that, to the best of our knowledge, the annual financial statements have been prepared in accordance with current accounting standards, and that the informa- tion contained therein provides a true and fair view of the assets, liabilities, financial position and overall results of the parent company and of the Group. We also confirm that the annual report gives a true and fair view of the performance, results and financial position of the parent company and the Group, as well as describing the most important areas of risk and uncertainty facing the Group’s businesses.

Kristiansand, 2. April 2019 Board of Directors of Agder Energi AS

Lars Erik Torjussen Chair

Tine Sundtoft Jill Akselsen Leif Atle Beisland Deputy chair Board member Board member

Jon Vatnaland Marit Grimsbo Asbjørn Grundt Board member Board member Board member

Siw Linnea Poulsson Johan Ekeland Sverre Hallvard Hamre Board member Board member Board member

Oddvar Emil Berli Gro Granås Tom Nysted Board member Board member CEO

AGDER ENERGI ANNUAL REPORT 2018 34

IntroductionInnledning EierstyringCorporate oggovernance selskapsledelseThe Agder Energi konsernGroup Agder Energi AS SamfunnsrapportCSR III < >

After heavy snowfall in the win- ter of 2018 and the major storm “Knud” in the autumn, Agder Energi Nett implemented a number of measures to reduce the risk of power cuts. One of them is an extensive collabora- tion with the forestry industry to improve grid reliability.

THE AGDER ENERGI GROUP

AGDER ENERGI ANNUAL REPORT 2018 35

IntroductrionIntroduction CorporateCorporate governance governance The TheAgder Agder Energi Energi Group Group AgderAgder Energi Energi AS ASCSR CSR III III < >

THE AGDER ENERGI GROUP FINANCIAL STATEMENTS

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Income statement 37 Comprehensive income 38 Statement of finiancial position 39 Statement of cash flows 40 Statement of changes in equity 41 Accounting principles 42

NOTES Note 1 Segment information 50 Note 2 Energy sales 54 Note 3 Transmission revenues 56 Note 4 Other operating revenues and other raw materials and consumables used 56 Note 5 Long-term manufacturing contracts 57 Note 6 Unrealised gains and losses on energy contracts 57 Note 7 Employee benefits 58 Note 8 Property taxes and licence fees 58 Note 9 Other operating expenses 59 Note 10 Auditor’s fee 59 Note 11 Financial income and expenses 60 Note 12 Tax 61 Note 13 Depreciation and impairment losses 62 Note 14 Intangible assets 63 Note 15 Property, plant and equipment 64 Note 16 Associates and joint arrangements 66 Note 17 Non-current Financial Assets 68 Note 18 Receivables 68 Note 19 Cash and cash equivalents 68 Note 20 Share capital and shareholder information 69 Note 21 Provisions 70 Note 22 Pensions 71 Note 23 Interest-bearing liabilities 74 Note 24 Other non-interest-bearing current liabilities 74 Note 25 Financial instruments 75 Note 26 Derivatives 76 Note 27 Fair value of financial instruments 77 Note 28 Financial risk management 79 Note 29 Accounting hedges 83 Note 30 Mortgaged assets, liabilities and guarantees issued 84 Note 31 Contingent liabilities and events after the end of the reporting period 85 Note 32 Management compensation, etc. 85 Note 33 Related parties 87 Note 34 Acquisitions, disposals and buy-out of non-controlling interests 87 Note 35 Group structure 89

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INCOME STATEMENT

(Amounts in NOK million) Note 2018 2017 (restated)

Energy sales 2 12 648 8 429 Transmission revenues 3 1 313 1 207 Other operating revenues 4 1 406 1 264 Gains and losses on energy and currency contracts 6 -1 387 -542 Total operating revenues 13 980 10 358

Energy purchases 2 -9 012 -5 612 Transmission expenses -339 -270 Other raw materials and consumables used 4 -766 -793 Employee benefits 7 -974 -900 Depreciation and impairment losses 13 -659 -708 Property taxes and licence fees 8 -195 -196 Other operating expenses 9 -1 068 -817 Total operating expenses -13 013 -9 296

Operating profit 967 1 062

Share of profit of associates and joint ventures 11 -9 -22 Financial income 11 77 25 Unrealised gains and losses on interest rate contracts 11 67 30 Financial expenses 11 -249 -247 Net financial income/expenses -114 -214

Profit before tax 853 848

Income tax 12 -198 -208 Resource rent tax 12 -859 -390 Tax expense -1 057 -598

Net income from continuing operations -204 250

Net income from discontinued operations 34 0 244

Net income -204 494

Of which attributable to non-controlling interests 35 -6 7 Of which attributable to controlling interest -198 487

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

COMPREHENSIVE INCOME

(Amounts in NOK million) Note 2018 2017

Net income -204 494

Other comprehensive income and expenses Cash flow hedges 29 11 23 Translation differences -14 1 Tax impact 12 -5 -6 Total items that may be reclassified to income statement -8 18

Remeasurements of pensions 22 -312 87 Tax impact 12 92 -30 Total items that will not be reclassified to income statement -220 57

Total other comprehensive income and expenses -228 75

Comprehensive income -432 569

Of which attributable to non-controlling interests 35 -4 4 Of which attributable to controlling interest -428 565

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

STATEMENT OF FINANCIAL POSITION

(Amounts in NOK million) Note 31.12.18 31.12.17

Deferred tax assets 12 450 425 Intangible assets 14 326 368 Property, plant and equipment 15 15 171 14 599 Investments in associates and joint ventures 16 95 31 Derivatives 26 834 764 Other non-current financial assets 17 1 508 1 244 Total non-current assets 18 384 17 431

Inventories 158 72 Receivables 18 3 511 2 830 Derivatives 26 180 437 Cash and cash equivalents 19 383 61 Total current assets 4 232 3 400

TOTAL ASSETS 22 616 20 831

Paid-in capital 20 1 907 1 907 Retained earnings 1 592 2 624 Non-controlling interests 27 34 Total equity 3 526 4 565

Deferred tax 12 1 227 1 254 Provisions 21 2 010 1 817 Derivatives 26 1 148 822 Interest-bearing non-current liabilities 23 7 603 7 504 Total non-current liabilities 11 988 11 397

Interest-bearing current liabilities 23 1 657 1 736 Tax payable 1 023 607 Derivatives 26 1 111 149 Other non-interest-bearing current liabilities 24 3 311 2 377 Total current liabilities 7 102 4 869

TOTAL EQUITY AND LIABILITIES 22 616 20 831

Kristiansand, 2. April 2019 Board of Directors of Agder Energi AS

Lars Erik Torjussen Tine Sundtoft Jill Akselsen Leif Atle Beisland Jon Vatnaland Chair Deputy chair Board member Board member Board member

Marit Grimsbo Asbjørn Grundt Siw Linnea Poulsson Johan Ekeland Sverre Hallvard Hamre Board member Board member Board member Board member Board member

Oddvar Emil Berli Gro Granås Tom Nysted Board member Board member CEO

AGDER ENERGI ANNUAL REPORT 2018 39

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

STATEMENT OF CASH FLOWS

(Amounts in NOK million) Note 2018 2017

Cash flow from operating activities Profit before tax 853 848 Profit before tax from discontinued operations 0 249 Depreciation and impairment losses 13 659 717 Unrealised gains/losses on energy, currency and interest rate contracts 6, 11 1 558 797 Share of profit of associates and joint ventures 11, 16 9 24 Gain/loss on disposals 4 -235 Tax paid -609 -617 Change in trade receivables 18 -181 -276 Change in trade payables 24 474 7 Change in net working capital, etc. -718 -325 Net cash provided by operating activities 2 049 1 189

Investing activities Purchase of property, plant, equipment and intangible assets 14, 15 -1 397 -1 348 Purchase of property, plant and equipment paid for by customers 14, 15 -92 -99 Purchase of businesses/financial assets -94 -69 Net change in loans 165 -14 Sale of property, plant, equipment and intangible assets 248 6 Sale of businesses/financial assets 68 231 Net cash used in investing activities -1 102 -1 293

Financing activities New long-term borrowings 1 424 1 410 Repayment of long-term borrowings -961 -1 095 Net change in current liabilities -480 -83 Dividends paid -608 -610 Net cash used in financing activities -625 -378

Net change in cash and cash equivalents 322 -482

Cash and cash equivalents at start of period 61 543 Cash and cash equivalents at end of period 19 383 61

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STATEMENT OF CHANGES IN EQUITY

(Amounts in NOK million) Paid-in Cash flow Translation Retained Total for Non- Total capital hedges differences earnings controlling controlling equity interest interests

Equity at 01/01/2017 1 907 -117 4 2 781 4 575 51 4 626 Net income for the year 0 0 0 487 487 7 494 Other comprehensive income and expenses 0 17 4 57 78 -3 75 Dividends paid 0 0 0 -607 -607 -3 -610 Other changes in equity 0 0 0 -2 -2 -18 -20 Equity at 31/12/2017 1 907 -100 8 2 716 4 531 34 4 565

Equity at 01/01/2018 1 907 -100 8 2 716 4 531 34 4 565 Net income for the year 0 0 0 -198 -198 -6 -204 Other comprehensive income and expenses 0 6 -15 -220 -229 1 -228 Dividends paid 0 0 0 -606 -606 -2 -608 Other changes in equity 0 0 0 1 1 0 1 Equity at 31/12/2018 1 907 -94 -7 1 693 3 499 27 3 526

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Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

ACCOUNTING PRINCIPLES

General information Basis of preparation Changes to accounting principles Agder Energi’s activities comprise the gener- Agder Energi’s consolidated financial state- For 2018, Agder Energi has made changes ation, distribution and sale of energy, as well ments have been prepared in accordance to how it presents gains and losses on cash- as providing energy-related services. Most of with International Financial Reporting Stan- settled contracts linked to energy sales and the Group’s operations are in southern dards (IFRS) as approved by the EU. The con- purchases. The change, which is a result of ­Norway. The parent company Agder Energi solidated financial statements apply the the introduction of IFRS 15, is described in AS is a Norwegian limited liability company, ­historical cost principle, except in the cases greater detail below. There have been no founded and domiciled in Norway. The of certain financial assets and liabilities other changes to the accounting principles ­address of the company’s head office is ­(including cash-settled derivatives) that are since 2017. ­Kjøita 18, 4630 Kristiansand. measured at fair value.

SUMMARY OF THE MOST IMPORTANT ACCOUNTING PRINCIPLES

Consolidation principles against equity on the acquisition date. Bar- Joint operations The consolidated financial statements pres- gain purchase gains are based on fair values. Ownership interests in part-owned power ent the overall financial performance and These gains are attributed to any of the stations and water management associa- position of the parent company and its sub- company’s assets and liabilities with fair val- tions are classified as joint operations and sidiaries when considered as a single entity. ues that differ from their carrying amounts. are accounted for by including the Group’s Companies in which the Group holds a con- A provision is made for deferred tax relating share of assets, liabilities, revenues and ex- trolling interest are consolidated. A control- to any such asset write-ups or write-downs. penses on the relevant lines in the consoli- ling interest normally exists if Agder Energi Any part of the bargain purchase gain that dated financial statements (proportionate holds more than 50% of voting rights, either cannot be attributed to identifiable assets consolidation). through an ownership interest or through and liabilities is treated as goodwill. No pro- agreements. Subsidiaries acquired or estab- vision is made for deferred tax on goodwill. If Joint arrangements and associates lished during the year are consolidated from the value of the assets and liabilities trans- A joint arrangement is a company that is the date of acquisition or establishment. The ferred in conjunction with an acquisition subject to a contractual arrangement non-controlling interests’ share of profit or ­exceeds the purchase price, the difference is whereby two or more parties have joint loss after tax is specified on a separate line. recognised through profit and loss under control. Special rules on voting rights may other operating revenues. give owners more or less control than their All of the financial statements of individual ownership interests would imply. companies included in the consolidated Non-controlling interests in the acquiree ­financial statements have been restated to are measured either at fair value, or as the Associates are companies over which the ensure that equivalent statement of finan- non-controlling interest’s share of the Group wields significant influence. Normally cial position items and transactions are ­acquiree’s net identifiable assets. The mea- this applies to companies in which it has a treated consistently throughout the Group. surement method should be chosen indi- 20-50% ownership interest. All intra-group transactions, receivables, vidually for each business combination. ­liabilities and unrealised gains and losses Joint arrangements and associates are have been eliminated in the consolidated For step acquisitions, previously held assets ­accounted for using the equity method. The financial statements. are measured at fair value at the date Group’s proportionate share of the profit or ­control is obtained. Any gains or losses are loss for the year of these entities is recog- Acquisitions recognised through profit or loss. nised under financial income/expenses. On Purchase price allocation is performed for the statement of financial position, these the date when control was obtained. This is Changes in ownership interests in investments are classified as non-current when the risks and rewards of ownership subsidiaries ­financial assets, and are carried at cost ad- have been transferred, and normally coin- Changes in the parent’s ownership interest in justed for the Group’s share of retained cides with the acquisition date. Transaction a subsidiary that do not result in loss of earnings since acquisition, impairment costs are not included in the purchase price, ­control are accounted for as equity transac- ­losses and equity transactions at the com- and are instead expensed as incurred. The tions. panies. cost of shares in subsidiaries is eliminated

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Revenues income caps. Each year, NVE specifies an ficates to cover the volume sold is expensed. Recognition of revenues – general income cap for each individual distribution A provision for volumes not covered by pur- Proceeds from the sale of goods and services system operator. The revenues recognised chased electricity certificates is included on to customers are recognised as revenues in the income statement represent the the statement of financial position under when the goods or service are delivered. The ­volumes delivered during the financial period current liabilities measured at fair value. lines in the income statement for energy multiplied by the applicable tariff. The differ- Green electricity certificates purchased are sales, transmission revenues and other oper- ence between the income cap and the measured at cost. If the company has more ating revenues include revenue from con- ­actual tariff revenues creates a surplus or electricity certificates than it needs to cover tracts with customers in accordance with shortfall. The surplus or shortfall is not taken the volume of electricity sold, the excess is IFRS 15. Energy sales also includes some into account in the financial statements, but presented under inventories. Any such ex- small amounts related to electricity certifi- the amount is detailed in Note 3. Agder cess is measured at the lower of cost and fair cates received by our electricity generation ­Energi takes a practical approach to imple- value less costs to sell. business and the sale of concession power, menting IFRS 15, which involves recognising which both fall outside the scope of IFRS 15. transmission revenues in the amount that Foreign currency Agder Energi is entitled to invoice. The consolidated financial statements are Energy sales presented in Norwegian kroner (NOK). Sub- Revenues from the sale of electricity are Long-term contracts sidiaries with functional currencies other recognised when the electricity is supplied. Revenues associated with long-term manu- than NOK were responsible for around facturing contracts are recognised in accor- 30% of the Group’s turnover in 2018. These Energy sales include revenues from the sale dance with the percentage of completion are translated into NOK using the current- of electricity generated by the Group and method. Under this method, revenues and rate method. That involves the statement of energy sold to end users. The performance profit are recognised gradually as the work financial position being translated at the obligation is to supply electricity, and the related to the contract is completed. The per- exchange rate on 31 December and the in- transaction price is the consideration that centage of completion is normally estimated come statement being translated at the the Group expects to receive. The perfor- by looking at incurred expenses as a percent- average exchange rate. Translation differ- mance obligation is fulfilled over time, which age of total expected project expenses. ences are included under other comprehen- means that the revenues shall be recognised ­Accrued revenues are included on the state- sive income and expenses in the statement at the transaction price for each kWh ment of financial position under current of comprehensive income. ­supplied. Agder Energi takes a practical receivables, while advance payments re- ­approach to implementing IFRS 15, which ceived are included under current liabilities. When preparing the accounts of the indi- involves recognising revenues from electric- vidual companies, transactions in curren- ity sales in the amount that Agder Energi is Disposal of property, plant and equipment cies other than the functional currency of entitled to invoice. The right to invoice arises When disposing of property, plant and the company are translated into the func- when the electricity has been generated and equipment, any gain or loss is calculated by tional currency using the exchange rate on supplied, and the right to invoice normally comparing the sales price with the remain- the date of transaction. Foreign currency- corresponds directly to the value to the ing carrying amount of the asset sold. Any denominated statement of financial posi- cust­omer. In some cases the Group sells gain or loss is presented under other oper- tion items are measured using the exchange electricity through a market, in which case ating revenues or other operating expenses rate on the statement of financial position the market is defined as the customer. respectively. date. Translation differences are recognised under financial income/expenses. This does When electricity retailers and electricity Green electricity certificates not apply to euro-denominated loans used generating companies in the Group buy and Green electricity certificates received as a to secure future revenues from electricity sell electricity through a market, their result of qualifying electricity generation sales in that currency. Translation differenc- ­purchases and sales are presented gross. are recognised at fair value under energy es relating to these loans are classified as This is because they are separate business sales when the electricity is generated. operating gains or losses. areas whose transactions are managed Green electricity certificates held by the and executed completely independently of electricity generation business are present- Financial instruments one another. ed as inventories on the statement of finan- The Group designates financial instruments cial position, and are measured at the lower in the following categories: a) Financial Transmission revenues of their value when acquired and current ­assets and liabilities at fair value through Distribution system operation is subject to fair value less costs to sell. profit or loss; b) Financial assets at amor- the regulations of the Norwegian Water When the retail business sells electricity, the tised cost; c) Financial liabilities at amor- ­Resources and Energy Directorate (NVE) on estimated cost of purchasing electricity certi­ tised cost. Designation is based on the type

AGDER ENERGI ANNUAL REPORT 2018 43

Introduction Corporate governance The Agder Energi Group Agder Energi AS CSR III < >

of instrument and its purpose. Instruments of financial position, unless there exists a tives, such as futures contracts for electri­ are classified when they are acquired. legal right to offset, and that right will actu- city and currency, as well as interest rate ally be used when the contracts are settled. swaps and basis swaps (combined interest a) Financial assets and liabilities at fair Electricity contracts traded in markets sat- rate and currency swaps). The purpose of value through profit or loss isfy the offsetting requirements. Contracts these instruments is to secure cash flows Financial assets and liabilities at fair value with the same counterparty expiring in the from future electricity generation, as well as through profit or loss are financial instru- same calendar year are therefore presented to avoid large variations in the interest ex- ments held for trading purposes. All deriva- net in the statement of financial position. pense payable on the Group’s debt portfolio. tives must be designated as held for trad- ing, unless they are part of an accounting In the income statement, gains and losses Most of the Group’s hedging instruments do hedge. For derivatives other than cash flow on derivatives are shown on separate lines. not meet the documentation requirements hedges, unrealised gains and losses are Energy and foreign currency derivatives established by the accounting standards for recognised through profit or loss. used as economic hedges of operating hedge accounting. These contracts are exposure­ are presented under operating therefore not accounted for as hedges, even Physical contracts for the purchase and revenues,­ while gains and losses on interest if they have been entered into as hedges. sale of energy, CO2 quotas and electricity rate derivatives are presented under finan- These kinds of hedges are treated as finan- certificates that form part of the trading cial income/expenses. Regular payments cial assets or financial liabilities measured portfolio are accounted for as financial in- relating to interest rate swaps are presented at fair value through profit or loss. struments. Like their cash-settled equiva- as a financial expense. lents, they are measured at fair value. Certain interest rate swaps, including basis b) Financial assets at amortised cost swaps, do meet the conditions for hedge Physical contracts for the purchase and Trade receivables make up by far the biggest accounting under IFRS 9, and they are sale of energy, CO2 quotas and electricity proportion of the Group’s assets measured ­accounted for accordingly. These hedging certificates that have been entered into for at amortised cost. On initial recognition, relationships are presented in the consoli- the purpose of obtaining electricity needed they are measured at their transaction price. dated financial statements as follows: by the Group, or as a means of selling the Where the interest component is insignifi- electricity it generates, and which do not cant, they are measured at their nominal Cash flow hedges contain embedded derivatives, are normally value less any impairment losses. An impair- In so far as possible, Agder Energi uses cash recognised on delivery. Contracts entered ment loss is recognised if there is objective flow hedges to eliminate its exposure to fluc- into for different purposes are recorded in evidence that the Group will not receive pay- tuations in cash flows. This applies to a small separate books. ment in accordance with the original condi- proportion of the Group’s variable-rate tions. loans, which are swapped to a fixed rate. Agder Energi has some contracts for physi- cal energy sales that are settled in euros. Agder Energi makes a provision for any ex- The effective part of gains or losses on The performance obligations in the con- pected losses on financial assets at amor- hedging instruments is recognised under tracts are met using electricity generated tised cost. The provision is equivalent to the other comprehensive income and expenses by the Group, so the contracts do not fall difference between the contractual cash in the statement of comprehensive income, within the scope of IFRS 9. However, the flows and the cash flows that the Group ex- whereas the ineffective part is recognised fact that the contracts are settled in euros pects to receive based on the information under financial income/expenses in the in- means that they contain an embedded for- available on the reporting date. come statement. Any effective gain or loss eign currency derivative. Under the criteria on a hedging instrument is recycled to profit set out in IFRS 9, the foreign currency deri­ c) Financial liabilities at amortised cost or loss if the hedged item is recognised in vatives are not closely related to the elec- On initial recognition, financial liabilities are the income statement. tricity contract. They are therefore measured at fair value plus directly attribut- ­separated from the contracts for physical able transaction costs. Subsequently finan- Fair value hedges delivery and measured at fair value. cial liabilities are carried at amortised cost Agder Energi uses fair value hedges to using the effective interest rate method. hedge the interest rate on fixed-rate loans. Presentation of derivatives in the income The Group’s fair value hedges are deriva- statement and statement of financial position Hedging tives, which are measured at fair value Derivatives are presented on separate lines In order to manage its risk exposures arising through profit or loss. The hedged items are in the statement of financial position under from fluctuations in electricity prices, ex- loans whose carrying amounts fluctuate in assets and liabilities respectively. Deriva- change rates and interest rates, the Group parallel with the hedged risks. These chang- tives are presented gross on the statement uses euro-denominated loans and deriva- es in value are also recognised in profit or

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loss. Changes in the value of hedged items rules on the taxation of companies that source rent estimated for each individual and hedges are recognised under financial generate electricity. The Group therefore power station (37.0% in 2019). The re- income/expenses. pays income tax, natural resource tax and source rent is estimated from the hourly out- resource rent tax. put of the individual power station, multi­ Compensation plied by the spot price for the corresponding The Group pays compensation to landown- Income tax hour. In the case of concession power and ers for the right to use waterfalls and land. Income tax is calculated in accordance with power supplied under long-term contracts Compensation is also paid for any damage standard tax rules. The tax expense in the with a duration of more than seven years, to forests, land, etc. The compensation is a income statement consists of tax payable the actual contract price is applied. Actual combination of one-off payments and per- and changes in deferred tax liabilities/­ operating expenses, tax-deductible depre- petual charges or obligations to supply assets. This does not apply to deferred tax ciation and a tax-free allowance are electricity free of charge. The present value liabilities/assets relating to items recog- ­deducted from the estimated gross rent in of annual charges and the cost of supplying nised as other comprehensive income and order to reach the net taxable resource free electricity are presented under provi- expenses in the statement of comprehen- rent. The tax-free allowance is determined sions. If a contract to supply free electricity sive income or directly in equity, or to de- each year by multiplying the tax value of includes the option of settlement in cash, it ferred tax liabilities/assets arising in con- the power station’s property, plant and is considered a derivative and is measured junction with business combinations. Tax equipment by a standard interest rate set by at fair value through profit or loss. On initial payable is calculated on the taxable profit the Ministry of Finance. In 2018 the standard recognition, the cross entry of the provision for the year. Deferred tax liabilities/assets interest rate was 0.7%. Positive and nega- is a hydropower licence, which is presented are calculated on the basis of the temporary tive resource rent can be offset between under property, plant and equipment. In differences that exist between accounting power stations. This does not apply to nega- subsequent periods, annual compensation and tax values, as well as the tax effect of tive resource rent that arose before 2007, payments, as well as changes to provisions, any loss carryforwards. Deferred income tax which can only be offset at the power sta- are considered other operating expenses, liabilities and assets that are expected to be tion where it arose. Any negative resource whereas one-off payments are deducted reversed in the same period are offset rent can be carried forward with interest to from the provision. against each other. As assessment is made be offset against future positive resource of the extent to which it will be possible to rent. The interest rate applied to carryfor- Concession power and licence fees utilise deferred tax assets, and any amount wards was 1.8% for 2018. Each year, the Group supplies electricity to that can probably be utilised is included on local municipalities at a price set by the the statement of financial position. Deferred resource rent tax assets and Norwegian parliament. Revenues from this liabilities “concession power” are recognised as they Natural resource tax When calculating the deferred tax liabilities are earned, based on the regulated price. The natural resource tax payable is not and assets to be included on the statement The present value of the future loss of reve­ ­affected by profit, and is calculated on the of financial position, temporary differences nue due to the difference between the reg- basis of the individual power station’s aver- and part of the accumulated negative re- ulated price and spot price is not included age generation over the past seven years. source rent are taken into account. The part on the statement of financial position, but The tax is charged at 1.3 øre/kWh. Natural of the negative resource rent tax that can be it is presented in Note 2. resource tax can be deducted from income offset against temporary differences is capi- tax. As a result, natural resource tax talised on the statement of financial posi- Each year, the Group pays licence fees to ­normally neither affects Agder Energi’s tax tion, as is the part that is likely to be used the central government and municipalities expense nor its tax payable. within a 10-year time frame. Tax-free allow- for the increase in generating capacity ances are treated as a permanent difference achieved by damming and piping water. Resource rent tax in the year for which they are calculated. ­Licence fees are expensed as they are in- Resource rent tax is calculated by applying curred. The capitalised value of future fees the Norwegian Taxation Act’s special rules Deferred resource rent tax liabilities and is not included on the statement of financial on the taxation of companies that generate ­assets are presented gross. position, but is calculated and presented in electricity. The expense in the income Note 8. statement consists of resource rent tax Classification of current and non- payable and changes in deferred resource current assets and liabilities Tax rent tax liabilities/assets. An asset is classified as a current asset if it All of the companies in the Group have to fulfils one of the following criteria: pay ordinary income tax. In addition, Agder Resource rent tax is profit-related, and is a) it is expected to be realised in, or is Energi Vannkraft is covered by the special payable at a rate of 35.7% of the net re- held for sale or consumption in, the

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­ordinary business cycle; using the average interest rate on the These contributions are presented on the b) it is primarily held for trading; Group’s borrowings during the investment statement of financial position as unearned c) it is expected to be realised within period, and the interest is capitalised as revenue under provisions, and are taken to twelve months of the end of the report- part of the acquisition cost. Costs incurred income over the useful life of the relevant ing period, or: after the item entered service, such as reg- investments. d) it is a form of cash or cash equivalent, ular maintenance, are expensed. unless it is subject to restrictions which Leases mean that it cannot be realised or used Costs accrued in relation to internal invest- Almost all of Agder Energi’s leases are to settle a liability within twelve months ments within the Group are capitalised. The ­operating leases. Rent payable under these of the end of the reporting period. acquisition cost only includes directly at- leases is expensed as it arises. tributable costs. A liability is classified as a current liability if Impairment losses it fulfils one of the following criteria: Depreciation is calculated using the straight- Property, plant, equipment and intangible a) it is expected to be settled as part of line method over the expected useful life. assets that are depreciated are also tested the ordinary business cycle; The residual value is taken into account for impairment if there is any indication to b) it is primarily held for trading; when calculating annual depreciation. Sites suggest that future cash flows cannot c) it is due for payment within twelve are not depreciated. Hydropower licences ­justify the carrying amount. Any difference months of the end of the reporting are not depreciated either, as they do not between the carrying amount and the ­period; or: revert to public ownership. Major mainte- ­recoverable amount is expensed in the d) the company has no unconditional right nance activities that do not add anything to ­income statement. The recoverable amount to delay settlement of the liability property, plant and equipment (periodic is the higher of fair value less costs to sell ­beyond twelve months after the state- maintenance) are capitalised and depreci- and the utility value. ment of financial position date. ated over the maintenance interval. The esti­ mated useful life, depreciation method and When testing for impairment, non-current All other assets are classified as non-­ residual value are reassessed each year. assets are grouped at the lowest possible current assets and all other liabilities are level at which it is possible to identify inde- classified as non-current liabilities. When assets are sold or disposed of, their pendent cash flows (cash flow generating carrying amount is deducted, and any loss units). Most of the Group’s non-current For non-current liabilities, any principal or gain is recognised in the income state- ­assets are held by the hydroelectric power ­repayments due over the first year are pre- ment under other operating expenses and and network business areas. Within hydro- sented as current liabilities. revenues. Repairs and regular maintenance electric power, any power stations on the are expensed as incurred. Additions or im- same river system that are managed Intangible assets provements are added to the asset’s cost ­collectively are considered to be a single Intangible assets, including goodwill, are and are depreciated at the same rate as the cash flow generating unit. carried at cost less accumulated deprecia- asset. The distinction between mainte- tion and impairment losses, provided that nance and upgrades/improvements is In conjunction with each financial report, they meet the criteria for capitalisation. In- judged on the basis of the condition of the the Group assesses whether any past tangible assets with an uncertain useful life, asset when it was acquired by the company. ­impairment of non-financial assets, except including goodwill, are not depreciated, and Expenses that lead to significantly higher goodwill, should be reversed. are instead tested annually for impairment. cash flows by increasing the useful life of property, plant and equipment and/or Inventories Property, plant and equipment ­reducing maintenance costs, and that also Inventories are carried at the lower of cost Investments in production facilities and improve functionality, are considered rein- and fair value less costs to sell. The acquisition other property, plant and equipment are vestments. cost is calculated using the FIFO principle. carried at cost, less accumulated deprecia- If new parts are capitalised on the state- tion and impairment losses. Hydropower ment of financial position, the carrying Reservoir reserves ­licences are classified as property, plant amount of the parts that were replaced is The Group’s most valuable raw material is and equipment. Depreciation starts when deducted, and any gain or loss is recog- the water stored in its reservoirs. The value the assets are available for use. The acqui- nised in profit or loss. of this water is not capitalised on the state- sition cost of property, plant and equipment ment of financial position. includes the expenses involved in acquiring Each year, Agder Energi Nett receives cus- and preparing the asset for use. For large tomer contributions that fully or partially Cash pooling arrangement investments, interest payable is calculated pay for new connections or grid upgrades. Agder Energi AS has a cash pooling arrange-

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ment with its subsidiaries, and the Group income or expenses. This also applies to and measurement. The parts of IAS 39 that has a joint bank account for short-term de- the positive or negative difference between have not been changed as part of this project posits and short-term loans. External inter- the return on pension plan assets and the have been transferred and included in IFRS 9. est income and interest expenses arising discount rate. The implementation of the standard has not from the cash pooling arrangement are pre- significantly affected Agder Energi, so no sented as interest income and interest ex- Changes to defined benefit pension obliga- comparative figures have been restated. The penses on the consolidated income state- tions arising from plan amendments that standard came into force on 1 January 2018. ment. On the consolidated statement of are applied retrospectively, i.e. where the financial position, net deposits and over- change in entitlement also applies to past IFRS 15 – Revenue from contracts with drafts are presented as cash and cash equiv- years of service, are recognised directly in customers: alents and current liabilities respectively. profit or loss. Changes that are not applied Agder Energi implemented IFRS 15 with ef- retrospectively are recognised through fect from 1 January 2018. The standard has Liquid assets profit or loss over the remaining years of been applied retrospectively to prior report- Cash and cash equivalents includes cash, service. ing periods (full retrospective method) and bank deposits and commercial paper with a comparative figures have been restated. remaining term to maturity of less than The net pension liabilities associated with The standard applies to the recognition of three months when it was acquired. underfunded pension plans, and unfunded revenue. Around 90% of Agder Energi’s pension plans that are treated as operating revenue from customers comes from the Dividends expenses, are classified as provisions for sale of energy or transmission and distribu- Proposed dividends are classified as equity. non-current liabilities. For pension plans tion services. Within those areas, the stan- Dividends are reclassified as current liabili- with a surplus, the surplus is presented as a dard has had the following impacts: ties when they are adopted by the AGM. net pension asset under other non-current • There is widespread use of financial financial assets. ­instruments within the Hydroelectric Provisions, contingent assets and Power business area. They are mainly contingent liabilities The pension expense for the period is in- used as economic hedges for revenues A provision is recognised if the Group has a cluded under employee benefits. It consists from hydroelectric power generation. In present obligation arising from a past of the sum of the current service cost, inter- 2017 and earlier, realised gains and loss- event, and if it is probable that it will have est on net pension liabilities and employers’ es on these hedges were presented as to settle the obligation. Provisions are mea- NICs. energy sales, while unrealised gains and sured using the management’s best esti- losses were presented on a separate line. mate of the cost of settling the obligations Defined contribution pension plans on the statement of financial position date, In the case of a defined contribution plan, the Realised gains and losses on financial and are discounted to their present value if Group makes regular contributions into a ­instruments do not meet the definition of this makes a significant difference. separate legal entity, but has no further liabil- revenue from customer contracts in IFRS ities once the contributions have been made. 15. Nor do they meet the requirements for Pensions accounting hedges. They have therefore Defined benefit plans The contributions are expensed as employee been presented together with unrealised A defined benefit plan is a pension plan benefits when they are made. changes in value on the line for Gains and which defines the pension benefit an losses on electricity and currency contracts. ­employee will receive on retirement. The Statement of cash flows pension liability recognised for defined The statement of cash flows has been pre- Each year, the Group supplies around 0.5 benefit plans is the present value of the pared using the indirect method. TWh of the hydroelectric power it generates pension benefits earned as of the state- to local municipalities as concession power ment of financial position date, less the fair New accounting standards and inter- at regulated prices. The sale of concession value of the pension plan assets. The pen- pretations power has been judged to fall outside the sion obligation is calculated annually by an In 2018 Agder Energi implemented the fol- scope of IFRS 15. Revenues from the sale of independent actuary using the projected lowing new accounting standards: concession power are recognised at the credit unit method. regulated price based on the application of IFRS 9 – Financial instruments: principles analogous to IFRS 15. Remeasurements as a result of changes to The new standard introduces changes to the actuarial and economic assumptions classification and measurement, hedge ac- • Within the Energy Management busi- are recognised in the statement of compre- counting and impairment. IFRS 9 replaces ness area, we offer management ser- hensive income under other comprehensive IAS 39 Financial instruments – recognition vices where we sign contracts with cus-

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tomers that mirror the conditions continues to be our assessment. Our Agder Energi’s financial statements. obtained by Agder Energi in financial view is based on the fact that the new IFRS 16 – Leases: markets. The products are offered in installation or upgrade doesn’t consti- IFRS 16, which replaces IAS 17 Leases, will be volumes that reflect customers’ expect- tute a delivery to the customer at the implemented by Agder Energi as of the 2019 ed actual electricity consumption. In time of its completion. What the cus- financial year. The standard sets out princi- 2017 and earlier, realised gains and tomer gains is the opportunity to ples for recognition, measurement, presenta- losses on financial contracts with cus- ­receive electricity in the future, or to tion and disclosures in relation to leases. The tomers were considered an integrated increase the power supply. We have standard only applies to Agder Energi in its part of the electricity delivery and were also maintained our view that customer capacity as a lessee. IFRS 16 requires all leas- presented as energy sales. Unrealised contributions should be recognised as es to be treated in the same way, equivalent gains and losses were presented on a revenue over the useful life of the asset. to the model used for finance leases under separate line. In 2018 there were discussions within IAS 17. Leases of low-value assets and leases the industry as to whether upgrades of 12 months or less are exempted. At the Under IFRS 15, only payments for the physi- and new connections should be consid- start of the lease term, the lessee recognises cal supply of electricity to customers satisfy ered separate performance obligations a liability to make payments under the lease the definition of revenue from contracts with under IFRS 2018 and about when cus- and an asset representing the right to use customers. Realised gains and losses on tomer contributions should be recog- the leased asset. The lessee must recognise cash-settled contracts have therefore been nised. There now appears to be strong an interest expense on the liability and de- taken out of energy sales and are now pre- agreement within the industry on the preciate the asset. sented together with unrealised gains and use of this approach. losses under Gains and losses on electricity IFRS 16 will be implemented using the modi- and currency contracts. Consequently, The impacts of IFRS 15 described above only fied retrospective method. This means that ­realised gains and losses on contracts with affect the presentation of the income state- the comparative figures will not be restated. financial markets have been moved from ment. They do not affect Agder Energi’s The Group will make use of the exemption in ­energy purchases to the line for Gains and revenue­ recognition and therefore have no the standard that allows it to continue losses on electricity and currency contracts. impact on the Group’s equity. ­accounting for leases under the previous sys- • Applied to the financial statements for tem. On the transition date, the asset will be 2017, the above changes have reduced The table below shows the impact of imple- measured individually at a value equivalent energy sales by NOK 150 million, and menting IFRS 15. The first column shows the to the lease liability adjusted for any prepaid increased energy purchases by NOK figures reported in the 2017 financial state- and/or accrued lease payments. 135 million. Meanwhile, NOK 285 mil- ments, the second column shows the impact lion of revenue has been recognised of implementation and the third column Agder Energi has not fully analysed all of under Gains and losses on electricity shows the comparative figures for 2017 as the impacts of IFRS 16, but it expects its and currency contracts, so the net presented in this year’s financial statements. implementation in 2019 to result in: ­impact on profit is 0. The comparative figures for 2017 have been restated. The IASB has published a number of new • the recognition of around NOK 300 accounting standards, as well as amend- million of lease liabilities and assets • In the Network business area, custom- ments to existing accounting standards ers contribute toward the cost of up- and interpretations, that had not yet • a reduction of around NOK 50 million in grades or new connections to the power ­entered into force when the financial state- other operating expenses grid. Under the previous rules, Agder ments were presented. The new standard Energi did not consider this to be a on leases is the only one of these that is • an increase of around NOK 50 million separate performance obligation. This expected to have a significant impact on in depreciation

• an increase of around NOK 10 million in (Amounts in NOK million) Reported Impact of Restated interest expenses in 2017 implemen- tation Energy sales 8 579 -150 8 428 Gains and losses on electricity and currency -827 285 -541 contracts Energy purchases -5 477 -135 5 612 Net impact on operating profit and net income 0

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CRITICAL ACCOUNTING JUDGEMENTS

Below we have set out the areas where the exemption). In some cases determining Concession power and licence fees judgements made by management in whether a contract of this kind should be The concession power provided and the lic­ ­applying the Group’s accounting principles classified as cash-settled is based on best ence fees paid to the central government potentially have a material impact on the judgement. and municipalities are supposed to comp­ consolidated financial statements. ensate for the damage or inconvenience Based on the criteria set out in IFRS 9, the caused by hydropower projects. Liabilities Non-financial energy contracts senior management team has used its arising from the fact that future conces- Non-financial energy contracts, which in best judgement to assess which contracts sion power may be supplied at a discount accordance with IFRS 9 are considered to should be defined as financial instruments to the market price, as well as the cost of be contracts that can be “settled net in and which contracts should not. future licence fees, are regulatory require- cash”, are treated as though they were fin­ ments and are therefore non-contractual ancial instruments. This applies unless the Contracts classified as financial instru- liabilities. Consequently they are not in- contracts have been entered into and ments are carried at fair value, with gains cluded in the financial statements, but ­continue to be held for the purpose of the and losses recognised in profit or loss, their present value has been calculated, receipt or delivery of the energy in accor- while other contracts are recognised on and is presented in Note 2 and Note 8. dance with the Group’s expected purchase, delivery. sale or usage requirements (the “own use”

UNCERTAINTIES – CRITICAL ACCOUNTING ESTIMATES

In conjunction with the preparation of the ated over its expected useful life, giving rise contract structures, negative events or other financial statements, the management has to depreciation in the income statement. operating conditions. When calculating the to make certain estimates and assumptions. Estimates of the useful life of assets are recoverable amount, a number of estimates These affect the reported assets and liabili- based on experience and past perfor- must be made regarding future cash flows, ties, including contingent assets and liabili- mance, but they also rely significantly of with required rates of return, prices, operat- ties at the end of the reporting period, and best judgement. The estimated useful life is ing margins and sales volumes being the the reported revenues and expenses for the adjusted if new information implies that the most important factors. period. Actual results may deviate from current useful life is no longer the best esti­ these estimates. mate. The residual value, which is taken Deferred tax assets into account when calculating depreciation, The Group has capitalised deferred tax as- The most important assumptions concern- is also estimated. sets arising from negative resource rent that ing the future and other key sources of esti- has been carried forward. Deferred tax as- mation uncertainty are set out below. The Group spends significant amounts on sets are capitalised when it is expected that maintenance and upgrades to its property, it will be possible to make use of the nega- Fair value of financial instruments plant and equipment. Best judgement is tive resource rent within a ten-year time The fair value of long-term cash-settled used to determine whether any given ex- frame. The timing of when it may be possible electricity contracts and electricity con- penditure is an upgrade (capitalised) or to make use of negative resource rent is tracts not covered by the own use exemp- maintenance (expenses). Expenditures that particularly dependent on assumptions tion is partly calculated using assumptions lead to significantly higher cash flows by -in ­regarding future electricity prices. The man- that are not observable in the market. Where creasing the useful life of property, plant and agement has used its best judgement when that is the case, the management has based equipment and/or reducing maintenance making assumptions about future electricity its estimates on the information available in costs, and that also improve functionality, prices and other assumptions that affect the market in combination with its best are capitalised. Regular maintenance is ex- ­future resource rent. See Note 12 for a more judgement. There is a more detailed descrip- pensed. See Note 15 for a breakdown of ex- detailed description. tion of the assumptions used to value those pensed maintenance activities. contracts in Note 27. The fair value of ex- Pensions change-traded interest rate, foreign curren- Impairment losses Calculating pension liabilities involves using cy and electricity derivatives is calculated The Group invests significant amounts in in- best judgement and estimates for a number based on market practice and confirmed by tangible assets and property, plant and of parameters. See Note 22 for a more external market players. equipment. These non-current assets are ­detailed description of the assumptions that tested for impairment if there is an indica- have been applied. Property, plant and equipment tion that they have fallen in value. This might Property, plant and equipment is depreci- be indicated by changes in market prices or

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NOTES

NOTE 1 SEGMENT INFORMATION

(Amounts in NOK million) Hydroelec- Energy ma- Network LOS Otera tric Power nagement 2018 2018 2018 2018 2018

INCOME STATEMENT Note Operating revenues 3 703 7 599 1 358 942 953 - of which external operating revenues 3 532 7 296 1 266 913 907 - of which internal operating revenues 171 303 92 30 47

Energy and transmission expenses -373 -7 238 -459 -802 0 Other raw materials and consumables used 4 0 0 0 -1 -626 Employee benefits 7 -119 -249 -124 -36 -210 Other operating expenses 8, 9 -582 -197 -488 -66 -74 Operating profit before depreciation and impairment losses 2 629 -84 287 37 44 Depreciation and impairment losses 13 -271 -27 -271 -2 -4 Operating profit 2 358 -111 16 35 40 Share of profit of associates and joint ventures 11 0 0 0 0 0 Financial income 11 23 8 2 4 5 Financial expenses 11 -101 -10 -91 -1 -8 Net financial income/expenses -77 -3 -89 3 -4 Profit before tax 2 281 -114 -72 38 36 Tax expense 12 -1 330 -21 31 -9 -7 Net income from continuing operations 950 -135 -41 29 29 STATEMENT OF FINANCIAL POSITION Total assets 9 509 2 945 6 368 485 253 Equity 2 481 419 908 99 -86 Total segment liabilities 7 028 2 526 5 460 386 339 Capital employed 1) 6 406 554 4 620 99 111 Interest-bearing liabilities 23 3 925 134 3 712 0 198 Funds from operation (FFO) 2) 1 810 -144 208 31 52 Carrying amount of associates and joint ventures 16 0 0 0 0 0 Investments in intangible assets 3) 0 1 34 0 0 Investments in property, plant and equipment 3) 568 18 637 10 3 Number of full-time equivalents 142 192 170 45 140

1) Equity + interest-bearing liabilities. 2) Underlying EBITDA + dividends from associates and joint ventures + financial income – tax payable. 3) Includes additions of intangible assets and property, plant and equipment through business combinations. The negative value for LOS is due to its reclassification.

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(Amounts in NOK million) Parent/ Eliminations Total IFRS adjus- Total Other (NGAAP) tments (IFRS) 2018 2018 2018 2018 2018

INCOME STATEMENT Note Operating revenues 912 -872 14 596 -616 13 980 - of which external operating revenues 607 76 14 596 -616 13 980 - of which internal operating revenues 306 -948

Energy and transmission expenses -92 273 -8 691 -660 -9 351 Other raw materials and consumables used 4 -140 0 -766 0 -766 Employee benefits 7 -300 64 -974 0 -974 Other operating expenses 8, 9 -362 512 -1 257 -6 -1 263 Operating profit before depreciation and impairment losses 19 -23 2 908 -1 282 1 626 Depreciation and impairment losses 13 -71 -7 -653 -6 -659 Operating profit -52 -30 2 255 -1 288 967 Share of profit of associates and joint ventures 11 15 -24 -9 0 -9 Financial income 11 1 819 -1 784 77 67 144 Financial expenses 11 -821 770 -262 14 -249 Net financial income/expenses 1 013 -1 039 -195 81 -114 Profit before tax 961 -1 069 2 060 -1 208 853 Tax expense 12 -142 186 -1 293 236 -1 057 Net income from continuing operations 819 -883 768 -971 -204 STATEMENT OF FINANCIAL POSITION Total assets 15 370 -15 025 19 906 2 709 22 616 Equity 3 807 -3 874 3 754 -228 3 526 Total segment liabilities 11 564 -11 150 16 152 2 937 19 089 Capital employed 1) 13 528 -12 301 13 018 -232 12 787 Interest-bearing liabilities 23 9 721 -8 426 9 264 -4 9 260 Funds from operation (FFO) 2) 738 Carrying amount of associates and joint ventures 16 161 -66 95 0 95 Investments in intangible assets 3) 44 -15 64 0 65 Investments in property, plant and equipment 3) 100 -3 1 333 92 1 425 Number of full-time equivalents 287 976 976

1) Equity + interest-bearing liabilities. 2) Underlying EBITDA + dividends from associates and joint ventures + financial income – tax payable. 3) Includes additions of intangible assets and property, plant and equipment through business combinations. The negative value for LOS is due to its reclassification.

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(Amounts in NOK million) Hydroelec- Energy Network LOS Otera tric Power manage- ment 2017 2017 2017 2017 2017

INCOME STATEMENT Note Operating revenues 2 893 5 210 1 335 670 954 - of which external operating revenues 2 781 5 070 1 271 641 809 - of which internal operating revenues 112 140 64 29 145

Energy and transmission expenses -232 -4 786 -353 -522 0 Other raw materials and consumables used 4 0 -5 0 -1 -639 Employee benefits 7 -113 -207 -112 -35 -271 Other operating expenses 8, 9 -514 -157 -338 -54 -103 Operating profit before depreciation and impairment losses 2 034 56 531 57 -59 Depreciation and impairment losses 13 -283 -29 -259 -2 -6 Operating profit 1 752 27 271 56 -65 Share of profit of associates and joint ventures 11 0 0 0 0 0 Financial income 11 15 3 2 1 0 Financial expenses 11 -79 -11 -75 -1 -6 Net financial income/expenses -64 -9 -74 0 -5 Profit before tax 1 688 19 198 55 -70 Tax expense 12 -692 -17 -31 -13 17 Net income from continuing operations 996 2 167 43 -53 STATEMENT OF FINANCIAL POSITION Total assets 8 657 2 076 6 083 466 685 Equity 2 386 429 1 003 102 69 Total segment liabilities 6 270 1 647 5 080 363 616 Capital employed 1) 6 066 794 4 658 102 364 Interest-bearing liabilities 23 3 680 366 3 655 0 295 Funds from operation (FFO) 2) 1 465 53 526 57 -50 Carrying amount of associates and joint ventures 16 0 0 0 0 0 Investments in intangible assets 3) 0 22 27 1 0 Investments in property, plant and equipment 3) 469 4 748 1 7 Number of full-time equivalents 152 180 169 46 326

1) Equity + interest-bearing liabilities. 2) Underlying EBITDA + dividends from associates and joint ventures + financial income – tax payable. 3) Includes additions of intangible assets and property, plant and equipment through business combinations. The negative value for LOS is due to its reclassification.

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(Amounts in NOK million) Parent/ Eliminations Total IFRS adjus- Total Other (NGAAP) tments (IFRS) 2017 2017 2017 2017 2017

INCOME STATEMENT Note Operating revenues 722 -760 11 023 -665 10 358 - of which external operating revenues 460 -9 11 023 -665 10 358 - of which internal operating revenues 262 -752 0 0 0

Energy and transmission expenses -42 187 -5 748 0 -5 612 Other raw materials and consumables used 4 -144 -4 -793 0 -793 Employee benefits 7 -291 130 -899 0 -900 Other operating expenses 8, 9 -284 452 -999 -14 -1 013 Operating profit before depreciation and impairment losses -40 4 2 585 -814 1 770 Depreciation and impairment losses 13 -72 2 -648 -60 -708 Operating profit -111 7 1 936 -874 1 062 Share of profit of associates and joint ventures 11 1 -23 -22 0 -22 Financial income 11 2 193 -2 189 25 30 55 Financial expenses 11 -1 092 998 -268 21 -247 Net financial income/expenses 1 102 -1 214 -264 51 -214 Profit before tax 990 -1 208 1 672 -823 848 Tax expense 12 -78 136 -677 79 -598 Net income from continuing operations 912 -1 072 994 -745 250 Net income from discontinued operations 248 0 248 -4 244 STATEMENT OF FINANCIAL POSITION Total assets 14 764 -14 464 18 266 2 565 20 831 Equity 3 639 -3 828 3 800 764 4 565 Total segment liabilities 11 124 -10 637 14 465 1 801 16 266 Capital employed 1) 12 718 -11 661 13 040 765 13 805 Interest-bearing liabilities 23 9 078 -7 834 9 240 1 9 240 Funds from operation (FFO) 2) 1 196 Carrying amount of associates and joint ventures 16 73 -42 31 0 31 Investments in intangible assets 3) 58 16 125 0 125 Investments in property, plant and equipment 3) 96 -16 1 309 99 1 408 Number of full-time equivalents 292 1 163 1 163

1) Equity + interest-bearing liabilities. 2) Underlying EBITDA + dividends from associates and joint ventures + financial income – tax payable. 3) Includes additions of intangible assets and property, plant and equipment through business combinations. The negative value for LOS is due to its reclassification.

Segment information is reported using the same segments as used in financial reports to the Group management team. Segment ­reporting is used by Agder Energi’s management to assess the performance of the various business areas, and to allocate resources to them. Operating segments are presented in accordance with the organisational structure, and are based on the internal business areas.

The Network business area is presented as a separate segment. The business area is responsible for power distribution in Agder.

The Hydroelectric Power business area, which is responsible for operating the Group’s hydropower plants, is also reported as a separate segment.

The Energy Management business area manages the Group’s generation portfolio, its retail portfolios in Scandinavia and its operations in the German demand response market. The business area includes the companies Agder Energi Kraftforvaltning AS, Entelios AS,

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the Entelios­ AB Group, Entelios AG, Entelios GmbH and Nordgröön, and its operations are located in Norway, Sweden and Germany. ­Revenues from the generation portfolio are presented under the Hydroelectric Power business area.

Within the Marketing business area, LOS and Otera are presented as separate segments, due to their size and the differences between their areas of activity, while the rest of the business area is presented under parent company/other. LOS is an energy retailer that serves domestic customers, while Otera provides electrical contracting services.

The financial statements follow Norwegian generally accepted accounting principles (NGAAP), as they are also used for internal ­corporate governance purposes.

The Eliminations segment relates to the elimination of intra-group transactions and balances. Transactions between segments are on an arm’s-length basis.

The IFRS adjustments segment covers items arising from the fact that the accounts of segments are presented in accordance with NGAAP, while the consolidated financial statements are presented in accordance with IFRS. The main reason for the differencesbetween ­ the segment reporting and the consolidated financial statements is that changes in unrealised gains/losses on derivatives are not ­included in the segment reporting. In addition, the segment reporting for the Network business area uses the approved income cap, whereas the consolidated statements are based on invoiced revenues; see Note 3.

The majority of Agder Energi’s turnover comes from customers in Norway or from Nord Pool Spot (the marketplace for trading physical power contracts). The turnover of the subsidiary groups Otera AB and Entelios AB comes from the Swedish market. The subsidiary group Entelios GmbH generates its turnover in the German market.

Geographic distribution of operating revenues by location of business (Amounts in NOK million) 2018 2017 Norway 10 482 7 792 Sweden 2 987 2 362 Germany 1 782 731 Other countries 116 15 Total energy sales, transmission revenues and other operating revenues 15 367 10 900 Unrealised gains and losses on energy and currency contracts -1 387 -542 Total operating revenues 13 980 10 358

Geographic distribution of assets based on location of business (Amounts in NOK million) 2018 2017 Norway 21 016 19 535 Sweden 1 110 1 086 Germany 417 136 Other countries 73 74 Total assets 22 616 20 831

NOTE 2 ENERGY SALES

Agder Energi optimises its generation of hydroelectric power based on an assessment of the value of available water in relation to current and expected future spot prices. Contracts for physical delivery and cash-settled contracts are used to secure cash flows from power generation. Cash-settled contracts, which include both electricity and foreign currency contracts, are described in greater detail in Note 28. In addition, Agder Energi has long-term physical delivery contracts with industrial customers. Those contracts cover around 20 TWh of energy to be delivered between now and 2030.

The Group’s energy sales and purchases are specified in the table below. Electricity generated by the hydropower business and sold through Nord Pool Spot and electricity bought through Nord Pool Spot for the retail business are presented gross.

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Energy sales (Amounts in NOK million) 2018 2017 Power generation 3 675 2 599 Retail market 7 224 5 109 Network 43 32 District heating 188 108 Market operations 1) 1 764 704 Eliminations -245 -123 Total 12 648 8 429

1) Refers to managing and providing market access for renewable energy on behalf of external generating companies, as well as selling demand response services.

Energy purchases (Amounts in NOK million) 2018 2017 Power generation 226 133 Retail market 6 972 4 788 Network 178 120 District heating 92 41 Market operations 1 788 663 Eliminations -244 -133 Total 9 012 5 612

The table below shows key figures for our power generating activities. 2018 2017 Net electricity generation (less pumping) (GWh) 8 686 8 812 Reservoir reserves at 31 Dec. (GWh) 3 180 4 429 Reservoir reserves as % of capacity 61 % 84 %

The resources Agder Energi needs to generate power are available to it through licences. Agder Energi controls – either directly or indirectly through water management associations and joint arrangements – licences to regulate watercourses and to acquire ownership rights to waterfalls. These licences do not revert to public ownership, with the exception of a few minor regulations of the Arendal river system, which constitute less than 1% of the total river regulation capacity. Agder Energi has a perpetual obligation to supply 555 GWh each year to local municipalities, who are entitled to buy electricity at a regulated price. In most cases this price is set by the Ministry of Petroleum and Energy, but Agder Energi has some licences where the price is established individually based on government guidelines. Revenues from concession power are recognised as income when the electricity is supplied.

The future loss of revenue arising from the obligation to supply concession power at below market prices is estimated at NOK 2.2 billion. No provisions have been made for this in the financial statements, as it is estimated that the agreed price covers electricity generation costs. The calculation of the loss of revenue is based on a nominal pre-tax interest rate of 5.0%, a price differential of 10 øre/kWh and an expected inflation rate of 2.5%.

(Volume in GWh) 2018 2017 Volume of concession power (GWh) 555 545 Regulated price (øre/kWh) 11,2 11,5

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NOTE 3 TRANSMISSION REVENUES

The Norwegian Water Resources and Energy Directorate regulates the revenues of distribution system operators by setting an annual income cap. Based on the income caps they have been allocated and the volumes of electricity they expect to distribute, distribution system operators set the transmission tariffs payable by customers. In the event of any difference between actual and expected volumes, revenues from transmission tariffs will show a surplus or shortfall relative to the permitted revenues (income cap). In the accounts of Agder Energi Nett AS, this difference is treated as either a liability or an asset. However, in the consolidated­ financial statements, which are presented in accordance with IFRS, this surplus or shortfall does not qualify for inclusion on the statement of financial position, and only the actual transmission tariff revenues are recognised in the income statement.

(Amounts in NOK million) 2018 2017 Revenues under next year’s income cap recognised in the consolidated income statement 105 -21 Accumulated surplus transmission revenues not included on the statement of financial position 337 232

NOTE 4 OTHER OPERATING REVENUES AND OTHER RAW MATERIALS AND CONSUMABLES USED

Other operating revenues

(Amounts in NOK million) Note 2018 2017 Contracting 5 953 963 Services 231 178 Other revenues 222 123 Total 1 406 1 264

Electrical contracting services are provided through Otera, and cover areas such as electrical power systems and transportation.

Other raw materials and consumables used (Amounts in NOK million) Note 2018 2017 Contracting 5 626 648 Other purchases 140 145 Total 766 793

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NOTE 5 LONG-TERM MANUFACTURING CONTRACTS

The projects included under this item relate to the electrical contracting business. They are carried out for customers and are accounted for using the percentage of completion method. Profit is recognised in proportion to the percentage of completion of the project. The percentage of completion is estimated to be the ratio between project costs incurred to date and total estimated project costs. Estimated losses on projects are also recognised in profit or loss.

(Amounts in NOK million) 2018 2017 Total revenues recognised for contracts not completed at 31 Dec. 575 642 Total expenses recognised for contracts not completed at 31 Dec. 491 609 Accrued revenues included under other receivables 80 91 Deferred revenues included under other liabilities 38 32 Share of outstanding receivables not yet due under contract terms 0 0 Remaining turnover from loss-making projects 0 0

NOTE 6 UNREALISED GAINS AND LOSSES ON ENERGY CONTRACTS

Breakdown of profit and loss effects of financial instruments by class of instrument:

(Amounts in NOK million) Note 2018 2017 Cash-settled electricity contracts 26 -1 599 -638 Supply of free electricity/Cash-settled compensation power 21 -46 -8 Long-term special contracts measured at fair value 26 190 -108 Currency contracts, basis swaps and currency loans 26 20 -360 Embedded derivatives 26 77 287 Total change in unrealised gains and losses 26 -1 357 -827 Realised gains and losses for the year -30 285 Total -1 387 -542

Reversal of unrealised gains and losses at 1 January on contracts closed out during the -243 -377 year 1) Gains and losses on contracts that had not been closed out as of 31 December -1 114 -450 Total -1 357 -827

1) Value at start of 2018 (2017) of contracts that were closed out during 2018 (2017).

The table above refers to financial instruments that are used in relation to electricity generation or the retail business and that must be measured at fair value through profit or loss. These are mainly designed to secure future revenues from electricity sales.

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NOTE 7 EMPLOYEE BENEFITS

(Amounts in NOK million) Note 2018 2017 Wages and salaries 895 851 Employers’ National Insurance Contributions 132 144 Pension expense (incl. employers’ NICs) 22 51 84 Other benefits and reimbursements 48 43 Capitalised wage costs arising from own investments -152 -222 Total 974 900

Number of full-time equivalents in continuing operations at 31 Dec. 976 1 163

The reduction in the number of full-time equivalents was due to the sale of 49% of the shares in Otera Infra.

For details of senior management compensation, please see Note 32.

NOTE 8 PROPERTY TAXES AND LICENCE FEES

(Amounts in NOK million) 2018 2017 Licence fees 52 50 Property taxes 143 146 Total 195 196

Licence fees are perpetual payments designed to compensate for the damage or inconvenience caused by hydropower projects. The fees are paid annually and are adjusted in line with the consumer price index, initially at the first turn of the year five years after the licence was granted and subsequently every five years. Annual and perpetual payments to compensate for the damage or inconvenience caused by the development of hydropower stations are indexed in the same way as licence fees.

The present value of the Group’s future licence fees, for which no provision has been made in the financial statements, has been calculated to be NOK 1.9 billion using a discount rate of 2.5%.

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NOTE 9 OTHER OPERATING EXPENSES

(Amounts in NOK million) 2018 2017 Property-related expenses 97 85 Lease of machinery and office equipment 27 27 Purchase of plant and equipment 55 47 Repairs to and maintenance of equipment 21 20 Contractors 184 72 Operation/maintenance of IT systems 34 38 Technical consultants 55 47 Administrative consultants 193 138 Other external services 68 40 Office supplies, telecommunications, postage, etc. 32 36 Cost of vehicles 30 30 Leases for cars, machinery, etc. 34 32 Travel expenses, subsistence allowances, mileage expenses, etc. 34 38 Sales, advertising, representation, membership fees and gifts 41 33 Insurance premiums 24 19 Share of other operating expenses at joint arrangements 90 87 Supply of free electricity and compensation 6 5 Other operating expenses 43 23 Total 1 068 817

NOTE 10 AUDITOR’S FEE The Group’s auditor Ernst & Young audits the parent company and the most important subsidiaries. The total auditing fees paid to Ernst & Young for consolidated companies comprise:

(Amounts in NOK millions excl. VAT) 2018 2017 Statutory audit 4,6 2,9 Other certification services 0,1 0,1 Tax advice 0,0 0,1 Other services not related to auditing 0,7 0,1 Total 5,4 3,2

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NOTE 11 FINANCIAL INCOME AND EXPENSES

(Amounts in NOK million) Note 2018 2017

Share of profit of associates and joint ventures 16 -9 -22

Net realised exchange rate gains 27 15 Other interest income 47 9 Other financial income 3 1 Financial income 77 25

Unrealised gains and losses on interest rate contracts 26 67 30 Unrealised gains and losses on interest rate contracts 67 30

Interest expense on loans 1) 176 171 Interest expense on interest rate swaps 73 83 Other interest expenses 6 4 Interest on capitalised construction loans -18 -27 Realised loss on shares 5 0 Impairment of non-current financial assets 0 9 Other financial expenses 7 7 Financial expenses 249 247

Net financial income/expenses -114 -214

1) Relates to interest expenses on loans carried at amortised cost.

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NOTE 12 TAX

(Amounts in NOK million) 2018 2017 Tax expense in income statement Income tax payable 354 203 Resource rent tax payable 671 432 Changes in deferred income tax -156 -6 Changes in deferred resource rent tax 188 -31 Total tax expense recognised in income statement 1 057 598

Reconciliation of nominal and effective tax rates Profit before tax 853 848 Expected tax 196 204

Tax effect of Permanent differences 23 24 Impact of loss carryforwards not included on the SoFP 1 8 Resource rent tax incl. deferred tax 859 390 Net impact of changes in tax rates -23 -28 Total tax expense 1 057 598

Effective tax rate 124 % 70 %

This high tax rate is the result of recognising unrealised losses on contracts that are measured at fair value. These contracts are generally only subject to ordinary income tax, and not resource rent tax. Unrealised losses on these contracts therefore ­significantly reduce pre-tax profit, without having any impact on the resource rent tax expense.

The expensed resource rent tax was NOK 459 million higher than in 2017. The resource rent tax payable is mainly calculated on the basis of the spot value of electricity generation. Rising spot prices through 2018 significantly increased the spot value of our electricity generation. This factor explains around NOK 300 million of the rise in the expensed resource rent tax. The remaining increase mainly reflects the fact that in 2018 there was an expense related to a reduction in the carrying amount of deferred tax assets arising from negative resource rent carryforwards, whereas in 2017 there was an equivalent gain. The reduction in negative resource rent carryforwards was due to some power stations having high resource rent in 2018 that was offset against negative resource rent from previous years. This is apparent from the table on the next page, which shows a reduction in negative resource rent carryforwards included on the SoFP.

Breakdown of temporary differences and negative resource rent carried forward Taxable income Property, plant and equipment 3 787 3 819 Current assets/liabilities -270 -75 Pension liabilities 401 659 Other non-current provisions -948 -1 444 Derivatives -884 127 Other 15 -121 Gross differences 2 100 2 965 Tax rate 22 % 23 % Net deferred income tax assets (-)/liabilities (+) 462 682

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Resource rent Temporary differences 1 695 1 457 Negative resource rent carryforwards expected to be offset against profit over the coming 10 years -846 -1 043 Gross differences 850 414 Tax rate 37,0 % 36 % Net deferred income tax assets (-)/liabilities (+) 314 148

Of which presented in the financial statements as: Deferred tax 1 227 1 254 Deferred tax assets 450 425

Deferred tax assets arising from negative resource rent carryforwards not included on the SoFP -389 -368

The assessment of whether the Group will be able to make use of its accumulated negative resource rent carryforwards is based on market prices for electricity and an assumption that future yields on short-term government debt will be between 1.1% and 2.4%. In accordance with the relevant accounting standards, the calculation makes an adjustment to the expected value of negative resource rent carryforwards to allow for the uncertainty associated with this.

(Amounts in NOK million) 2018 2017

Changes in net deferred tax liabilities (+)/ assets (-) over the year Net deferred tax liabilities (+)/assets (-) at 31 Dec. prior year 829 809 New deferred tax liabilities (+)/assets (-) 0 14 Deferred tax liabilities (-)/assets (+) at businesses disposed of during the year 2 12 Change in net deferred tax liabilities (+)/assets (-) included in comprehensive income -87 36 Change in deferred tax liabilities (+)/assets (-) recognised through profit or loss 31 -40 Net deferred tax liabilities (+)/assets (-) at 31 Dec. 777 829

Changes in deferred tax on items in the SoCI Remeasurements of pensions -92 30 Cash flow hedges 5 6 Net change in deferred tax on items in the SoCI -87 36

NOTE 13 DEPRECIATION AND IMPAIRMENT LOSSES

(Amounts in NOK million) Note 2018 2017 Amortisation of intangible assets 14 63 57 Impairment of intangible assets 14 10 63 Depreciation of property, plant and equipment 15 581 588 Impairment of property, plant and equipment 15 5 0 Total depreciation, amortisation and impairment losses recognised in operating 659 708 profit Impairment of financial assets 11 0 9 Total depreciation, amortisation and impairment losses recognised in statement 659 717 of cash flows

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NOTE 14 INTANGIBLE ASSETS

(Amounts in NOK million) Goodwill Software Other Total intangible intangible assets assets

Acquisition cost 94 275 160 529 Accumulated depreciation and impairment losses 0 -100 -61 -161 Carrying amount at 31/12/2017 94 175 99 368

Carrying amount at 01/01/2018 94 175 99 368 Additions 0 39 26 65 Disposals at book value 0 0 -34 -34 Depreciation 0 -36 -27 -63 Impairment losses 0 0 -10 -10 Carrying amount at 31/12/2018 94 178 54 326

Acquisition cost 94 314 127 535 Accumulated depreciation and impairment losses 0 -136 -73 -209 Carrying amount at 31/12/2018 94 178 54 326

Depreciation period Tested an- 3-5 years 3-8 years nually

Goodwill impairment The Group tests goodwill annually for impairment, or more frequently if there is evidence to suggest a fall in value. No goodwill impairment was recognised in 2018. Agder Energi has not identified any other intangible assets with indefinite useful lives. Goodwill that has arisen in conjunction with acquisitions has been allocated as follows:

Breakdown of goodwill on the SoFP (Amounts in NOK million) 2018 2017 Otera 38 38 Entelios AB and Entelios AS 51 51 Others 5 5 Carrying amount of goodwill 94 94

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NOTE 15 PROPERTY, PLANT AND EQUIPMENT

HYDROELECTRIC POWER GENERATION DISTRIBUTION NETWORK (Amounts in NOK million) Rights and Tunnels and Machinery and Power station Regional power Local licences dams electrical buildings and transmission distribution infrastructure sites grid network Carrying amount at 01/01/2017 1 131 3 051 2 291 1 000 1 331 2 977 Additions 2 513 108 42 438 586 Disposals at book value 0 0 0 -1 0 0 Depreciation -4 -68 -153 -55 -63 -122 Impairment losses 0 0 0 0 0 0 Carrying amount at 31/12/2017 1 129 3 496 2 246 986 1 706 3 441

Acquisition cost 1 179 4 893 5 069 2 069 2 684 5 843 Accumulated depreciation and impair- -50 -1 397 -2 823 -1 083 -978 -2 402 ment losses Carrying amount at 31/12/2017 1 129 3 496 2 246 986 1 706 3 441

Carrying amount at 01/01/2018 1 129 3 496 2 246 986 1 706 3 441 Additions 0 61 123 22 294 442 Disposals at book value 0 0 -4 0 -254 -12 Depreciation -3 -73 -151 -37 -73 -170 Impairment losses 0 0 0 0 0 0 Carrying amount at 31/12/2018 1 126 3 484 2 214 971 1 673 3 701

Acquisition cost 1 179 4 948 5 178 2 091 2 693 6 138 Accumulated depreciation and impair- -53 -1 464 -2 964 -1 120 -1 020 -2 437 ment losses Carrying amount at 31/12/2018 1 126 3 484 2 214 971 1 673 3 701 Depreciation period (years) 67/ 67-99 20-50 50-67/ 15-50 15-50 not depreciated not depreciated

DISTRICT HEATING OTHER ACTIVITIES (Amounts in NOK million) District heating Property Other Work in Total property, progress plant and equipment Carrying amount at 01/01/2017 637 132 198 1 069 13 817 Additions 56 0 76 -412 1 409 Disposals at book value 0 -5 -33 0 -39 Depreciation -24 -7 -92 0 -588 Impairment losses 0 0 0 0 0 Carrying amount at 31/12/2017 669 120 149 657 14 599

Acquisition cost 858 199 575 657 24 026 Accumulated depreciation and impairment losses -189 -79 -426 0 -9 427 Carrying amount at 31/12/2017 669 120 149 657 14 599

Carrying amount at 01/01/2018 669 120 149 657 14 599 Additions 78 1 77 327 1 425 Disposals at book value 0 0 3 0 -267 Depreciation -27 -7 -45 0 -586 Impairment losses 0 0 0 0 0 Carrying amount at 31/12/2018 720 114 184 984 15 171

Acquisition cost 936 200 505 984 24 852 Accumulated depreciation and impairment losses -216 -86 -321 0 -9 681 Carrying amount at 31/12/2018 720 114 184 984 15 171

Depreciation period (years) 8-60 25-99/ 3-20 ingen avskr.

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Additions for work in progress are calculated as gross additions less completed projects within the relevant category. Periodic maintenance is included within the relevant category. Capitalised loan arrangement fees amounted to NOK 18 (27) million in 2018, calculated using the Group’s average interest rate of 2.7% (2.9%).

NOK 3,045 (3,104) million of property, plant and equipment at joint arrangements is included in the main groups under ­hydroelectric power generation and under work in progress.

Of the additions under distribution networks, NOK 92 (99) million were financed through customer contributions.

The stated depreciation periods apply to the majority of the assets in each category, although there may be some minor deviations from them.

Maintenance expenses came to NOK 225 (210) million in 2018. NOK 311 (281) million of capitalised reinvestments in existing ­facilities have been included under the additions for the year.

Below the useful lives of the most important assets on the SoFP are set out:

Hydroelectric power stations Hydroelectric power stations Depreciation (years) Depreciation (years)

Waterfall rights Not depreciated Machinery - Runners 40 Structures - Turbines 40 - Rock-fill dams 99 - Turbine hall cranes, air handling units, pumps 25 - Caverns 99 - Turbine regulators 15 - Concrete dams 67 - Grating cleaners 10 - Power station buildings 67 - Other buildings 50 Process equipment and communication - Grid control systems 20 Penstock - Control centre 10 - Underground 99 - Communications/Control/Logging 10 - Underground pipeline 67 - Above ground pipeline 40 Electrical systems - Transformers 40 Gates, gratings, entrances, etc. - Generators 40 - Intake gates 50 - Auxiliary systems (switches, low-voltage systems) 25 - Dam gates 50 - Switchgear and other high-voltage systems 25 - Gratings 50 - Entrances 50 Periodic maintenance (interval) - Stream intakes 50 - Refurbishment of buildings 25 - Machinery – major service 20 Roads and bridges - Electrical systems – major service 20 - Roads/quays 67 - Bridges 50 Other assets Depreciation period (years) Energy distribution networks - Sites Not depreciated Depreciation period (years) - District heating pipelines 60 Regional power transmission grid: - Office buildings 50 - Power and ground cables 50 - Vehicles 8 - High-voltage power lines 40 - Fixtures and fittings 5 - Grid control systems 20 - Office and IT equipment 3 Local power distribution network: - High-voltage lines and cables 50 - Low-voltage lines and cables 40 - Distribution substations 35

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NOTE 16 ASSOCIATES AND JOINT ARRANGEMENTS

Agder Energi has various investments in associates and joint arrangements. Joint arrangements include joint ventures and joint operations. Associates and joint ventures are accounted for using the equity method, whereas proportionate consolidation is used for investments in joint operations.

Associates and joint ventures (accounted for using the equity method)

(Amounts in NOK million) 2018 2017 Associates 35 10 Joint ventures 60 21 Carrying amount at 31 Dec. 95 31

Profit from associates -18 -23 Profit from joint ventures -18 -11 Gain on disposals 27 12 Share of profit of associates and joint ventures -9 -22

Breakdown of investments in associates: (Amounts in NOK million) Ownership Carrying Additions Disposals Consolida- Carrying interest amount at ted share of amount at 31/12/2017 profit/loss 31/12/2018 Otovo AS 13,5 % 8 8 0 -5 11 Otera Infra AS 49,0 % 0 14 0 5 19 Skagerak Venture Capital I KS/GP KS 19,6 % 1 4 0 0 5 NorthConnect KS/NorthConnect AS 22,3 % 1 18 0 -18 0 Total for associates 10 43 0 -18 35

Breakdown of investments in joint ventures: (Amounts in NOK million) Ownership Carrying Additions Disposals Consolida- Carrying interest amount at ted share of amount at 31/12/2017 profit/loss 31/12/2018 Statkraft Agder Energi Vind DA 38,0 % 0 0 0 0 0 Nodes AS 50,0 % 0 9 0 -5 4 Nodes-Tech AS 50,0 % 0 29 0 0 29 Grønn kontakt AS 47,2 % 21 20 0 -13 28 Total for joint ventures 21 57 0 -18 60

Statkraft Agder Energi Vind DA was sold in 2018.

Joint operations (proportionate consolidation) Joint operations consist of power stations and water management associations. Agreements regulate key areas of cooperation, and the joint owners receive their respective shares of the electricity generated in return for covering an equivalent proportion of the expenses. The Group uses the proportional consolidation method to account for joint operations, and the Group’s share of revenues, expenses, assets and liabilities are consolidated on a pro-rata basis. Agder Energi is a joint owner of the following power stations and water management associations:

Otra Kraft owns the Holen, Brokke and Skarg power stations on the River Otra. Otra Kraft is owned by Agder Energi Vannkraft, which has a 68.6% interest, and Skagerak Kraft, which has a 31.4% interest, and is managed through the general meeting. The company has its

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head office at Rysstad in Valle.

Ulla Førre is owned by Statkraft, Lyse Energi, Skagerak Energi, Haugaland kraftlag and Agder Energi Vannkraft. Agder Energi Vannkraft has a 6.0% ownership interest in Ulla Førre, which entitles it to an equivalent proportion of the power generated by the facility.

The power station Finndøla kraftverk is 50:50 owned by Agder Energi Vannkraft and Skagerak Kraft.

The power station Hekni kraftverk is a statutory co-ownership between Agder Energi Vannkraft, with a 66.67% interest, and Skagerak Kraft, with 33.33%. The co-ownership is managed through a steering committee. Agder Energi Vannkraft represents the co-ownership in dealings with third parties.

The water management association Otteraaens Brugseierforening comprises Agder Energi Vannkraft, Skagerak Kraft and Vigelands Brug. The association is managed through its Board. Agder Energi Vannkraft’s ownership interest, including its indirect interest through Otra Kraft, is approximately 73.8%. Otteraaens Brugseierforening has its business address in Valle.

The water management association Arendals Vasdrags Brugseierforening comprises Agder Energi Vannkraft, Skafså Kraftverk, Skagerak Kraft and Arendals Fossekompani. The association is managed through a Board, and has its business address in Arendal. Agder Energi Vannkraft’s ownership interest is approximately 52.2%. No single member can have more than 50% of the votes.

Sira-Kvina is owned by Agder Energi Vannkraft (12.2%), Lyse Produksjon (41.1%), Statkraft Energi (32.1%) and Skagerak Kraft (14.6%). It is managed through its Board. The company has its business address at Tonstad.

Below there follows a summary of the Group’s share of assets, liabilities, revenues and expenses at jointly controlled assets. The energy sales in the table do not represent actual revenues, and have instead been calculated by multiplying Agder Energi Vannkraft’s actual power generation by the average electricity price, and adding Agder Energi Vannkraft’s share of revenues from concession power. (Amounts in NOK million) 2018 2017 Energy sales 1 548 1 032 Other operating revenues 10 6 Total operating revenues 1 558 1 038

Transmission expenses -55 -40 Energy purchases -22 -16 Property taxes and licence fees -81 -83 Depreciation -101 -100 Other operating expenses -63 -85 Total operating expenses -323 -324

Operating profit 1 235 715

Non-current assets 3 053 3 112 Current assets 92 75 Total assets 3 145 3 187

Current liabilities 98 71 Net assets 3 048 3 116

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NOTE 17 NON-CURRENT FINANCIAL ASSETS

(Amounts in NOK million) Note 2018 2017 Investments in shares and ownership interests 7 5 Loans to associates and joint arrangements 2 7 Other receivables 1) 892 323 Pension assets 22 607 909 Total 1 508 1 244

1) The majority of the amount relates to receivables related to cash collateral for financial trading, as well as non-current trade receivables.

The fair value of non-current financial assets is described in greater detail in notes 25 and 27.

NOTE 18 RECEIVABLES

(Amounts in NOK million) 2018 2017 Face value of trade receivables 2 182 2 037 Bad debt provision 13 13 Total trade receivables 2 169 2 024 Accrued revenues 569 495 Prepaid expenses 144 56 Receivables from joint arrangements 0 12 Other receivables 537 180 Share of current assets at joint arrangements 92 63 Total receivables 3 511 2 830

Ageing analysis of trade receivables (Amounts in NOK million) Not overdue 0-30 days 31-60 dager 61-90 dager Over 90 days Total overdue overdue overdue 2018 overdue 31-60 days 3 11 43 2 182 2017 overdue 61-90 days 17 11 88 2 037

NOTE 19 CASH AND CASH EQUIVALENTS

(Amounts in NOK million) 2018 2017 Deposits in cash pooling arrangement 95 0 Cash and cash equivalents 269 52 Restricted assets (e.g. term deposits, tax withholding account and client assets) 19 9 Total 383 61

The parent company has set up a cash pooling arrangement with an associated NOK 500 million overdraft facility. Most ­subsidiaries in the Group in which the parent company holds an ownership interest of at least 50% take part in the cash pooling arrangement and are jointly and severally liable to the bank for the overdraft facility.

A NOK 55 million bank guarantee covering the parent company and subsidiaries has been used as security for tax deductions at source.

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NOTE 20 SHARE CAPITAL AND SHAREHOLDER INFORMATION

The share capital is made up of Number Face value Share capital of shares (in NOK 000s) Aksjekapital 2 700 000 670 1 809 000

List of shareholders in Agder Energi AS Number % Number % Total number % of tot. Share capital of class A of class A of class B of class B of shares number of shares shares shares shares shares Statkraft Industrial Holding AS 743 197 41,289 % 485 990 53,999 % 1 229 187 45,525 % 823 555 Arendal Municipality 115 017 6,390 % 57 507 6,390 % 172 524 6,390 % 115 591 Kristiansand Municipality 95 400 5,300 % 47 700 5,300 % 143 100 5,300 % 95 877 Grimstad Municipality 53 327 2,963 % 26 663 2,963 % 79 990 2,963 % 53 593 Flekkefjord Municipality 53 269 2,959 % 14 650 1,628 % 67 919 2,516 % 45 506 Lyngdal Municipality 49 745 2,764 % 13 680 1,520 % 63 425 2,349 % 42 495 Kvinesdal Municipality 49 254 2,736 % 13 545 1,505 % 62 799 2,326 % 42 075 Lillesand Municipality 40 901 2,272 % 20 450 2,272 % 61 351 2,272 % 41 105 Marnardal Municipality 44 500 2,472 % 12 238 1,360 % 56 738 2,101 % 38 014 Sirdal Municipality 43 845 2,436 % 12 057 1,340 % 55 902 2,070 % 37 454 Mandal Municipality 42 343 2,352 % 11 644 1,294 % 53 987 2,000 % 36 171 Vennesla Municipality 42 343 2,352 % 11 644 1,294 % 53 987 2,000 % 36 171 Froland Municipality 31 847 1,769 % 15 924 1,769 % 47 771 1,769 % 32 007 Søgne Municipality 33 601 1,867 % 9 240 1,027 % 42 841 1,587 % 28 703 Evje og Hornnes Municipality 27 511 1,528 % 13 756 1,528 % 41 267 1,528 % 27 649 Songdalen Municipality 31 689 1,761 % 8 714 0,968 % 40 403 1,496 % 27 070 Lindesnes Municipality 31 470 1,748 % 8 654 0,962 % 40 124 1,486 % 26 883 Hægebostad Municipality 28 776 1,599 % 7 913 0,879 % 36 689 1,359 % 24 582 Farsund Municipality 27 502 1,528 % 7 563 0,840 % 35 065 1,299 % 23 494 Birkenes Municipality 22 679 1,260 % 11 340 1,260 % 34 019 1,260 % 22 793 Åmli Municipality 21 921 1,218 % 10 960 1,218 % 32 881 1,218 % 22 030 Risør Municipality 21 052 1,170 % 10 525 1,169 % 31 577 1,170 % 21 157 Valle Municipality 20 327 1,129 % 10 164 1,129 % 30 491 1,129 % 20 429 Bygland Municipality 19 995 1,111 % 9 998 1,111 % 29 993 1,111 % 20 095 Iveland Municipality 19 155 1,064 % 9 578 1,064 % 28 733 1,064 % 19 251 Tvedestrand Municipality 19 066 1,059 % 9 533 1,059 % 28 599 1,059 % 19 161 Åseral Municipality 21 776 1,210 % 5 988 0,665 % 27 764 1,028 % 18 602 Vegårshei Municipality 14 553 0,809 % 7 277 0,809 % 21 830 0,809 % 14 626 Bykle Municipality 13 232 0,735 % 6 616 0,735 % 19 848 0,735 % 13 298 Gjerstad Municipality 12 423 0,690 % 6 211 0,690 % 18 634 0,690 % 12 485 Audnedal Municipality 8 284 0,460 % 2 278 0,253 % 10 562 0,391 % 7 077 Total 1 800 000 100 % 900 000 100 % 2 700 000 100 % 1 809 000

The NOK 1,809 million of share capital is made up of class A and class B shares.

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Class A shares can only be owned by shareholders who meet the conditions for being allocated indefinite waterfall licences under the relevant current legislation. Class B shares are freely negotiable. In all other respects, class A and class B shares have equal rights.

The company has entered into an industrial collaboration agreement with its biggest shareholder, Statkraft Industrial Holding AS.

There is also a shareholders’ agreement between the shareholders in the company.

The company has a corporate assembly with 15 members, who are elected for a two-year term.

The proposed dividend payout for 2018 comes to NOK 592 million in total, equivalent to NOK 219 per share.

NOTE 21 PROVISIONS

(Amounts in NOK million) Note 2018 2017 Pension liabilities 22 314 293 Other non-current provisions 1 697 1 524 Total 2 010 1 817

Breakdown of other non-current provisions (Amounts in NOK million) Supply of free Supply of free Cash-settled Unearned Other Total electricity 1) electricity and electricity revenue, provisions 5) compensation contracts 3) customer 2) contributions 4) Carrying amount at 01/01/2017 649 216 25 319 264 1 473 Unrealised gains and losses 8 0 -20 0 0 -12 New provisions 0 5 0 99 9 113 Provisions used 0 0 0 -11 -39 -50 Carrying amount at 31/12/2017 657 221 5 407 234 1 524

Carrying amount at 01/01/2018 657 221 5 407 234 1 524 Unrealised gains and losses 46 0 51 0 0 97 New provisions 0 6 0 93 -3 96 Provisions used 0 0 0 -13 -7 -20 Carrying amount at 31/12/2018 703 227 56 487 224 1 697

1) Perpetual obligations to supply electricity free of charge that are presented as financial instruments at fair value in accordance with IFRS 9, as they can be settled in cash. Also see notes 25 and 27. 2) Perpetual obligations to supply electricity free of charge and pay compensation that are accounted for in accordance with IAS 37. These obligations to supply free electricity cannot be settled in cash. Compensation involves annual cash payments that are adjusted by inflation every five years. 3) Non-current cash-settled contracts measured in accordance with IFRS 9. Also see notes 25 and 27. 4) Customer contributions are a contractual obligation under IFRS 15 that are recognised as revenue over the useful life of the asset. The average useful life of these assets is around 30 years. Provisions used have been recognised as transmission revenues. 5) Mainly relates to a provision in conjunction with the sale of Fosen Vind DA. The final consideration depends on several parameters such as future tax rates, development costs and depreciation rates. There is still uncertainty about several of these parameters, and the provision is updated as and when new information becomes available.

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NOTE 22 PENSIONS

The Group’s pension plans For people taken on before 1 April 2007, the Group has a defined benefit pension plan run by Agder Energi Pensjonskasse, which meets the legal requirements for public sector occupational pension plans. Those taken on after 1 April 2007, as well as employees at companies outside Norway, are part of a defined contribution pension plan. The Group’s pension plans satisfy the requirements laid down in the Act on Mandatory Occupational Pensions.

Defined benefit pension plans The Group has a funded public pension plan for its employees in Norway, which entitles them to defined future pension benefits, based on their number of years of service and salary on reaching retirement age.

Pension liabilities were calculated by an independent actuary in December, and represent an estimate of the situation at 31 December. Similarly, the gross pension plan assets at 31 December were estimated by the Group’s management in December.

Certain current and former senior managers are entitled to pension benefits over and above those covered by the company pension plan; see Note 32. Provisions for these plans are presented under unfunded pension liabilities.

In 2018, Agder Energi sold 51% of the shares in Otera Infra. In conjunction with that sale, the company’s pension plan was changed to a defined contribution plan and the accrued entitlements were transferred to Agder Energi AS. This change reduced the pension expense for the year by NOK 30 million, because it lowered the pension liabilities, and this reduction was recognised in the income statement.

Defined contribution pension plan Anyone taken on after 1 April 2007 is entitled to membership of a defined contribution pension plan. Early retirement schemes (AFP schemes)

Employees covered by a public pension plan have an early retirement scheme, known as an AFP scheme. This is a so-called public sector AFP scheme, which like all such schemes set up from 2011 onwards does not receive a government subsidy. The Group is therefore fully liable for all of its obligations under the scheme.

When calculating the pension liability, it has been assumed that there will be a 100% take-up of the early-retirement scheme by the age of 64 and a half. For accounting purposes, employees start accruing early-retirement pension rights on reaching the age of 50 or on joining the Group, whichever is later.

Employees in Norway covered by the defined contribution plan are entitled to a private AFP scheme, which from 2011 onwards means a lifelong supplement to their retirement pensions from the National Insurance Scheme. This AFP scheme is partly funded by contributions made by the employer. The state covers the remaining 33% of the cost. The AFP scheme is considered a defined benefit plan, but for the moment it is being accounted for as a defined contribution plan. In 2018, the annual contribution to the scheme was 2.5% (2017: 2.5%) of qualifying pay between 1 and 7.1 times the National Insurance Scheme’s basic amount (“G”) for each employee covered by the scheme.

Actuarial assumptions When calculating the pension expense and net pension liabilities, a number of assumptions have been made (see table below). The discount rate is based on the interest rate on covered bonds. The assumptions used to calculate pension liabilities are consistent with the most recent guidelines on actuarial assumptions as of 31 December.

The Group uses the latest version of the Norwegian life tables (GAP 07) for its estimates of life expectancy, probability of disability, etc. Extracts from the actuarial tables are reproduced below. This table shows life expectancy and the probability that an employee in a given age bracket will suffer disability or die within a year.

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DISABILITY RISK IN % MORTALITY RISK IN % LIFE EXPECTANCY Age Man Woman Man Woman Man Woman 20 0,07 0,07 0,01 0,01 86 90 40 0,22 0,22 0,06 0,04 85 89 60 2,16 2,59 0,45 0,33 84 88 80 - - 5,66 2,97 88 90

(Amounts in NOK million) Note 2018 2017 The pension expense for the year has been calculated as follows Current service cost 51 49 Interest on net pension assets -13 -14 Employers’ National Insurance Contributions 7 7 Recognised impact of cap on pension benefits -30 0 Employee contributions -5 -8 Administration costs 6 6 Pension expense for the year, defined benefit plans 15 40 Private AFP scheme including employers’ NICs 5 5 Defined contribution pension plans (including employers’ NICs) 31 39 Total pension expense recognised in the income statement 7 51 84

Pension liabilities and pension plan assets

Change in gross pension liabilities Gross pension liabilities at 1 Jan. 1 969 1 852 Current service cost (incl. emp. NICs) 58 56 Interest cost 40 47 Benefits paid/paid-up policies -66 -75 Cap on pension benefits -30 0 Remeasurements 208 88 Gross pension liabilities at 31 Dec. (incl. emp. NICs) 2 179 1 969

Breakdown of defined benefit pension liabilities Funded pension liabilities 1 892 1 677 Unfunded pension liabilities 287 292 Gross pension liabilities at 31 Dec. 2 179 1 969

Change in gross pension plan assets Fair value of pension plan assets at 1 Jan. 2 584 2 369 Expected return on pension plan assets 53 62 Remeasurements -104 175 Administration costs -6 -6 Pension contributions 6 47 Benefits paid/paid-up policies -60 -62 Fair value of pension plan assets at 31 Dec. 2 473 2 584

Net pension liabilities/assets (-) at 31 Dec. -294 -616

Net pension assets recognised on the SoFP 17 608 909 Pension liabilities recognised on the SoFP 21 314 293 Net pension liabilities/assets (-) recognised at 31 Dec. -294 -616

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(Amounts in NOK million) 2018 2017 Change in net defined benefit pension liabilities Net defined benefit pension liabilities at 1 Jan. -616 -517 Pension expense recognised in profit or loss excl. employee contributions 20 47 Company net contributions incl. employers’ NICs -8 -54 Pension benefits included under operating expenses -3 -4 Remeasurements 312 -87 Net pension liabilities/assets (-) recognised at 31 Dec. -294 -616

Remeasurements are made up of Changes in demographic assumptions 55 15 Changes in financial assumptions 153 73 Positive (-)/negative (+) deviation from expected return on pension plan assets 104 -175 Total remeasurements included in the SoCI 312 -87

Sensitivity analysis for a +/- 0.5% percentage point change in the discount rate Increase in pension liabilities if the discount rate falls 183 158 Fall in pension liabilities if the discount rate rises -162 -152

The sensitivity analysis only looks at potential changes in the discount rate, as it is the only parameter considered to have a ­significant impact on recognised pension liabilities.

Assumptions used to determine pension liabilities at 31 Dec. Discount rate 2,70 % 2,30 % Annual wage growth 2,75 % 2,50 % Increase in the National Insurance Scheme’s basic amount (“G”) 2,50 % 2,00 % Annual indexing of pensions 1,75 % 1,50 % Expected average remaining years of service (funded) 8,1 years 8,2 years Expected average remaining years of service (unfunded) 7,5 years 5,6 years Retirement age: 64.5 years on average for both years.

Assumptions used to calculate the pension expense for the year Discount rate 2,30 % 2,60 % Annual wage growth 2,50 % 2,50 % Increase in the National Insurance Scheme’s basic amount (“G”) 2,00 % 2,25 % Annual indexing of pensions 1,50 % 1,50 %

Distribution of pension plan assets by investment category at 31 Dec. Property funds 14 % 12 % Interest-bearing financial instruments 29 % 29 % Shares 32 % 37 % Hedge funds 25 % 22 % Total 100 % 100 %

Pension plan assets consist of instruments traded on a stock exchange or funds that publish daily prices.

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2018 2017 Number of people covered by the pension plans Defined benefit plan: current employees 313 409 Defined benefit plan: accrued entitlements and retired employees 1 266 1 189 Defined contribution plan: current and temporary employees 663 748 Current employees entitled to public sector AFP, and early retirees 234 304

NOTE 23 INTEREST-BEARING LIABILITIES

(Amounts in NOK million) 2018 2017 Interest-bearing non-current liabilities Bonds 4 869 5 281 Liabilities to financial institutions 2 721 2 209 Other interest-bearing non-current liabilities 13 14 Total 7 603 7 504

Interest-bearing current liabilities Commercial paper 300 600 Overdraft and other interest-bearing current liabilities 0 180 Current portion of non-current liabilities (principal repayments due within one year) 1 357 956 Total 1 657 1 736

The fair value of the Group’s interest-bearing liabilities is described in Note 25. All of the above statement of financial position items are carried at amortised cost in accordance with IFRS 9. Note 28 sets out further details of interest rates, durations, liquidity­ risk, credit facilities, etc. Some loans form part of hedging relationships in accordance with IFRS 9. See Note 29 for a more detailed description.

(Amounts in NOK million) 2018 2017 Change in interest-bearing liabilities broken down by cash and non-cash items. Interest-bearing liabilities at 1 Jan. 9 240 9 143 New long-term borrowings (cash item) 1 424 1 410 Repayment of long-term borrowings (cash item) -961 -1 095 Net change in current liabilities (cash item) -480 -84 Exchange rate fluctuations (non-cash item) 41 150 Gains/losses on fair value hedges (non-cash item) -4 -284 Interest-bearing liabilities at 31 Dec. 9 260 9 240

NOTE 24 OTHER NON-INTEREST-BEARING CURRENT LIABILITIES

(Amounts in NOK million) 2018 2017 Trade payables 1 059 611 Unpaid government taxes and duties, tax deducted at source, etc. 434 599 Share of non-current liabilities at joint arrangements 98 71 Other current liabilities 1 720 1 096 Total 3 311 2 377

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NOTE 25 FINANCIAL INSTRUMENTS

Financial instruments constitute a significant proportion of Agder Energi’s total assets, and they have a big impact on the Group’s financial position and results. The majority of the financial instruments are used in energy trading or as financial hedges.

Within energy trading, financial instruments are used as part of a hedging strategy. When managing the Group’s exposure to risks associated with future electricity prices and exchange rates, these instruments are viewed together with future physical trading; see Note 28. Physical energy trading is only recognised in the financial statements when the energy is supplied/bought, whereas energy and currency derivatives are measured at fair value through profit or loss. If there are large volumes of these derivatives, they can therefore cause great volatility in the Group’s reported statement of financial position and net income, without it reflecting the overall financial results.

Financial hedges mainly consist of loans and interest rate swaps. When managing the Group’s interest rate risk, these two types of financial instruments are assessed together, and they are also viewed in the context of the Group’s other interest rate risks; see Note 28. In the financial statements, loans are measured at amortised cost, whereas interest rate swaps are measured at fair value through profit or loss. This can cause fluctuations in the Group’s reported profit or loss, without it reflecting its overall financial performance. There are some minor exceptions to this asymmetrical treatment; see Note 29 on accounting hedges.

In order to highlight the unrealised impact of these electricity, currency and interest rate contracts, their values and changes in value are presented on separate lines in the statement of financial position and income statement.

The table below shows the carrying amount and fair value of the Group’s financial instruments.

(Amounts in NOK million) Note Balanseført Virkelig Balanseført Virkelig verdi verdi verdi verdi 2018 2018 2017 2017 Financial assets at fair value through profit or loss Derivatives 26 1 014 1 014 1 201 1 201 Shares 17 7 7 5 5 Total financial assets at fair value through profit or loss 1 021 1 021 1 206 1 206

Financial assets at amortised cost Loans to associates 17 2 2 7 7 Other non-current receivables 17 892 892 323 323 Trade debtors and other receivables 18 2 706 2 706 2 204 2 204 Cash and cash equivalents 19 383 383 61 61 Total loans and receivables at amortised cost 3 997 3 997 2 595 2 595

Financial liabilities at fair value through profit or loss Non-current liabilities, obligations to provide free electricity and pay 21 703 703 657 657 compensation Non-current liabilities for electricity contracts measured at fair value 21 56 56 5 5 Derivatives 26 2 258 2 258 971 971 Total financial liabilities at fair value through profit or loss 3 017 3 017 1 633 1 633 1 633

Financial liabilities at amortised cost Bonds 23 6 226 6 256 5 981 6 091 Liabilities to financial institutions 23 2 734 2 784 2 478 2 531 Commercial paper 23 300 300 600 600 Overdraft and other interest-bearing current liabilities 23 0 0 181 181 Trade payables 24 1 059 1 059 611 611 Total financial liabilities at amortised cost 10 319 10 399 9 851 10 014

* For financial assets at amortised cost and trade payables, the estimated fair value is based on valuation techniques that do not only use observable market data to arrive at a valuation. For other financial liabilities at amortised cost, the estimated fair value is based on valuation techniques that only use observable market data to arrive at a valuation.

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NOTE 26 DERIVATIVES

Agder Energi has both independent derivatives (simply referred to as derivatives) and embedded derivatives.

Agder Energi has some contracts for physical energy sales that are settled in euros. The performance obligations in the contracts are met using electricity generated by the Group, so the contracts do not fall within the scope of IFRS 9. However, the fact that the contracts are settled in euros means that they contain an embedded foreign currency derivative. Under the criteria set out in IFRS 9, the foreign currency derivatives are not closely related to the electricity contract. They are therefore separated from the contracts for physical delivery and measured at fair value.

In the table below, derivatives with positive and negative fair values are broken down by whether they are electricity, currency or interest rate derivatives. The figures for energy derivatives are the accounting values of contracts which, under the criteria set out in IFRS 9, fall within the definition of financial instruments. Power contracts for physical delivery that qualify for the own useexemption ­ under IFRS 9 are not defined as financial instruments. There are therefore significant discrepancies between accounting values and underlying financial values, as the portfolios contain both contracts that fall within the scope of IFRS 9 and ones that do not. A small proportion of the Group’s interest rate derivatives are designated as accounting hedges; see Note 29 on accounting hedges.

Agder Energi offers several managed electricity trading products to the retail market. With these products, Agder Energi supplies physical electricity to a portfolio of customers, on whose behalf it actively trades electricity through NASDAQ (the marketplace for cash-settled electricity futures). These NASDAQ positions are measured symmetrically. In other words, Agder Energi recognises­ equivalent contracts with respect to the retail customers covered by the electricity trading products, but with the opposite exposure­ of the NASDAQ positions. This symmetrical treatment means that these financial positions do not have any impact on Agder Energi’s income statement, but it does result in an increase in total assets, as the gross value of derivatives on the statement of financial position rises.

(Amounts in NOK million) 2018 2017

Derivative assets (non-current) Portfolio of cash-settled electricity contracts* 93 95 Currency derivatives and basis swaps 6 0 Embedded currency derivatives in electricity contracts 724 650 Interest rate swaps 11 19 Total derivatives 834 764

Derivative assets (current) Portfolio of cash-settled electricity contracts* 91 355 Currency derivatives and basis swaps 4 0 Embedded currency derivatives in electricity contracts 84 82 Interest rate swaps 0 0 Total derivatives 180 437

Derivative liabilities (non-current) Portfolio of cash-settled electricity contracts* 687 394 Currency derivatives and basis swaps 246 175 Interest rate swaps 214 253 Total derivatives 1 148 822

Derivative liabilities (current) Portfolio of cash-settled electricity contracts* 1 079 31 Currency derivatives and basis swaps 31 104 Interest rate swaps 0 14 Total derivatives 1 111 149

* Includes both the portfolio of financial production hedges and the retail customer portfolio.

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NOTE 27 FAIR VALUE OF FINANCIAL INSTRUMENTS

The table below sets out to what extent observable market data are used to value financial instruments measured at fair value. The financial instruments have been broken down into the various categories used by the Group for classification purposes.

(Amounts in NOK million) Note Total Level 1 Level 2 Level 3

2018 Derivatives and electricity contracts measured at fair value* 26 1 014 0 205 808 Shares and ownership interests 17 7 0 0 7 Total assets 1 021 0 205 815

Supply of free electricity and compensation 21 703 0 0 703 Long-term cash-settled electricity contracts 21 56 0 0 56 Derivatives and electricity contracts measured at fair value* 26 2 258 0 2 302 -44 Total liabilities 3 017 0 2 302 715

2017 Derivatives and electricity contracts measured at fair value* 26 1 201 0 469 731 Shares and ownership interests 17 5 0 0 5 Total assets 1 206 0 469 736

Supply of free electricity and compensation 21 657 0 0 657 Long-term cash-settled electricity contracts 21 5 0 0 5 Derivatives and electricity contracts measured at fair value* 26 971 0 773 198 Total liabilities 1 632 0 773 859

* Includes derivatives listed on a stock exchange, embedded derivatives in electricity contracts, cash-settled electricity contracts and electricity contracts for physical delivery measured at fair value in accordance with IFRS 9.

Level 1 assets are financial instruments the fair values of which can be determined from market prices in an active market. Level 2 assets are financial instruments the fair values of which are estimated using a valuation model that only uses market data as its inputs. Level 3 assets are financial instruments the fair values of which are estimated using a valuation model that does not only use market data as its inputs. In 2018 the Group recognised a net loss of NOK 223 million on level 3 financial instruments.

Level 3 assets and liabilities at fair value* (Amounts in NOK million) Shares Supply of free Electricity Long-term Total and electricity and contracts measu- cash-settled ownership compensation red at fair value electricity interests contracts Opening balance at 01/01/2018 5 -657 534 -5 -122 Gains and losses recognised in profit or loss 2 -46 318 -51 223 Closing balance at 31/12/2018 7 -703 852 -56 100

* Liabilities are shown with a minus sign. The amount recognised relates to contracts still held by Agder Energi at the end of 2018.

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The valuation of contracts measured at fair value under Level 3 is most sensitive to changes in assumptions about the EUR/NOK exchange rate and electricity prices. A 10% increase (reduction) in the electricity price would have given a NOK 70 million reduction (increase) in the valuation. A 5% strengthening (weakening) of the Norwegian krone against the euro would have given a NOK 303 million reduction (increase) in the valuation. A 1% increase (reduction) in the electricity price would have given a NOK 105 million increase (reduction) in the valuation.

FAIR VALUE OF ENERGY DERIVATIVES

In measuring the fair value of energy derivatives, the following parameters and assumptions have been applied:

Electricity prices Listed derivatives and other bilateral contracts are measured using a smooth forward curve based on the final price on the statement of financial position date. The prices used are discounted.

Agder Energi has a number of perpetual supply contracts (compensation power), which are accounted for in accordance with IFRS 9. The market value of these contracts has been calculated based on a 200 year term. NASDAQ market prices are applied for the first five years. For subsequent periods, best estimates of future prices are used.

Foreign currency For contracts quoted in foreign currency, the calculation for the first five years is based on the exchange rate at the end of the reporting period and the associated forward exchange rates. For subsequent periods separate exchange rate assumptions are used.

Commodities For certain electricity contracts, the contract price is linked to the prices of various commodities. Valuations are based on the forward ­prices on the relevant commodity exchanges. If there are no quoted prices for the relevant time period, the commodity prices are inflation­-adjusted from the last quoted market price.

Green electricity certificates Contracts for the purchase and sale of electricity certificates that do not qualify for the own use exemption under IFRS 9 are measured at fair value. Valuations are based on forward prices. For contracts with terms that run beyond the period for which market prices are available, a risk discount is applied to the available forward prices.

CO2

CO2 contracts are valued using the forward price of emission quotas (EUAs) on NASDAQ and ICE.

Interest rates Energy derivatives are discounted by the market interest rate curve (swap curve). For the purpose of discounting perpetual supply ­contracts related to compensation power, a risk-adjusted nominal interest rate is used.

FAIR VALUE OF CURRENCY AND INTEREST RATE DERIVATIVES

Interest rate swaps, currency swaps and currency futures Interest rate and currency swaps, as well as currency futures (including embedded currency derivatives in electricity contracts), are valued by discounting future cash flows to their present value. Expected cash flows are calculated and discounted by looking at the observed market interest rates on the various currencies (swap curves) and the observed exchange rates, which are used to derive forward exchange rates. Where possible, the estimated present values are checked against the equivalent calculations carried out by the counterparties to the contracts.

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NOTE 28 FINANCIAL RISK MANAGEMENT

Agder Energi’s business activities expose it to market risk, credit risk and liquidity risk. There follows a more detailed description of these risks, and of how they are managed.

MARKET RISK Market risk primarily consists of electricity price risk, currency risk and interest rate risk. Risk management at Agder Energi focuses on entire portfolios of contracts, and not specifically on contracts that fall within the scope of IFRS 9.

There are internal guidelines on exposure to market risk, for both the hedging and trading portfolios. Agder Energi’s back and middle office staff have been given responsibility for continuously monitoring compliance with limits on risk exposure. Trading in both cash-settled and physical contracts is monitored systematically and reported regularly, both to senior management and to the Group’s risk management section.

MARKET RISK ARISING FROM ELECTRICITY PRICES

Power generation portfolio Agder Energi’s hydroelectric power generation business is exposed to risks arising from fluctuations in prices and volumes, as both future prices and precipitation levels are unknown.

Agder Energi enters into contracts and trades various cash-settled instruments, within set limits, in order to secure its revenues from electricity sales. This helps to stabilise revenues from one year to another, which is considered desirable on account of the great uncertainty surrounding electricity prices. Hedging activities take into account both the Group’s risk profile and expected electricity prices. For risk management purposes, cash-settled and physical contracts are considered together.

The exposure of the portfolio at any given time consists of expected future power generation, purchase and sale commitments under long-term physical contracts, as well as contracts on NASDAQ and bilateral cash-settled contracts. Bilateral financialcontracts ­ are only used to a limited extent.

The physical contracts in the portfolio comprise contracts concluded on normal commercial terms, contracts to supply conces- sion power and various contracts to supply free power and compensation power. The durations of the commercial contracts vary, but they all expire by the end of 2030. The Group has perpetual agreements to supply compensation power, and the contracts to supply concession power are also perpetual. These perpetual contracts cover less than ten percent of the Group’s mean electricity generation.

Retail customer portfolio The retail market covers the sale of electricity to consumers in Norway, and to state-owned entities and private companies ­throughout the Nordic region.

With many of our business customers we have contracts to provide management and electricity trading products that reflect their expected actual electricity consumption. This part of our business involves signing contracts with retail customers that mirror the conditions obtained by Agder Energi in the market. In so far as the customer is offered a profile or regional price that cannot be fully mirrored in the market, the residual risk is monitored carefully.

Contracts for physical delivery are based on spot prices or prices that have been fixed for varying lengths of time. When the­retail business has agreed a fixed price with a customer for a specific length of time, this creates an electricity price risk. This risk is ­hedged by using cash-settled contracts with NASDAQ or other bilateral counterparties within or outside the Group. The retail customer portfolios are exposed to volume and market timing risks, as many of the physical fixed-price contracts are flexible in terms of the volumes delivered. Based on experience, knowledge of normal seasonal variation and knowledge of other specific issues thataffect ­ end users’ electricity consumption, Agder Energi calculates the volumes likely to be consumed, and which consequently need to be hedged. Limits have been set on the maximum unhedged exposure to price and volume risk. Management is kept informed of the exposure level relative to the specified limits.

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The net exposure of the retail portfolios at any given time consists of sale contracts with prices that are fixed for varying lengths of time, as well as contracts on NASDAQ and bilateral cash-settled contracts. The vast majority of the contracts expire in less than three years, but there are some contracts with longer terms. The portfolio shall minimise electricity price risk and hedge the value of future revenues from this area. The retail portfolio maintains a net long position in cash-settled contracts.

Trading portfolios Agder Energi has trading portfolios which are managed independently of its expected power generation. All of the contracts in the trading portfolios are measured at fair value in the financial statements.

VaR calculations are the most important tool used to manage the risk exposures arising from these portfolios. The financial exposure at any given time is limited in relation to the power generation portfolio. Electricity trading authorisations are expressed in terms of limits on potential losses. At an operating level, risk management focuses on minimising any losses.

Electricity price sensitivity

Impact on profit of gains and losses on assets and liabilities at fair value in the event of electricity price fluctuations (Amounts in NOK million) Change in electricity prices -10 % 10 % Total impact on profit before tax 411 -411

The table shows a partial risk analysis of how the Group’s pre-tax profit would be affected by changes in the values of assets and ­liabilities in the event of a parallel 10% decrease/increase in forward electricity prices. The analysis only covers assets and liabilities measured at fair value in accordance with IFRS 9.

MARKET RISK – CURRENCY Agder Energi is exposed to currency risk, mainly through its electricity generation business and retail business.

The biggest exposure to currency risk arises from physical electricity sales by the electricity generation business. Nord Pool Spot contracts are settled in euros, and Agder Energi has also entered into long-term contracts to sell electricity that are payable in euros. In addition, currency risk arises as a result of financial trading on NASDAQ OMX being settled in euros.

Exposure to currency risk arising from electricity generation over the coming years is hedged in accordance with adopted limits on risk exposure. Exchange rate hedging can be done separately from electricity price hedging.

In the retail business, currency risk arises if customers are invoiced in a different currency from the one used to buy the physical electricity, guarantees of origin and electricity certificates, or the one used to settle cash-settled electricity futures. This currency risk is hedged through banks or the parent company and is managed at Group level.

An independent risk management section is responsible for checking that trading in foreign exchange instruments adheres to the adopted strategies and limits on risk exposure.

The table below shows a partial risk analysis of how the Group’s pre-tax profit would be affected by changes in the values of assets and liabilities in the event of a parallel 5% decrease/increase in the NOK/EUR exchange rate. A decrease is taken to mean the ­Norwegian krone strengthening in relation to the euro. The analysis covers changes in the value of currency futures, basis swaps, foreign currency loans, electricity derivatives, long-term contracts to sell electricity measured at fair value under IFRS 9 and embedded derivatives within long-term physical contracts.

Impact on profit of gains and losses on assets and liabilities in the event of exchange rate fluctuations (Amounts in NOK million) Change in exchange rate -5 % 5 % Total impact on profit before tax 178 -178

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MARKET RISK – INTEREST RATES

The vast majority of the Group’s exposure to interest rate risk arises from its debt portfolio. The Group also has an offsetting exposure to interest rate fluctuations through the deductible interest rate for resource rent purposes, and through the reference interest rateapplied ­ to the income cap on its distribution system operating business. Interest rate swaps are used to achieve the desired exposure to interest rates within the Group’s debt portfolio. The fixed interest period is set by using fixed-interest loans and interest rate derivatives.

Sensitivity to interest rates is measured by modified duration within a defined period of 1 to 5 years. Average duration at the close of the year was 3.7 years. The chosen strategy aims to minimise net financial expenses over the long term, while reducing risk to an ­acceptable level. It is based around making use of the Group’s natural interest rate hedges, such as the income cap on its distribution system operating business and the deductible interest rate used to calculate the resource rent tax payable by the power generation business. The group finance department is responsible for taking positions. Exposure to interest rate risk is measured. Current exposure to interest rate risk in relation to the limit specified in the finance strategy is reported monthly to the CFO. Interest rate exposure is also reported to the Group’s Board of Directors in the risk report.

Impact on profit of interest rate fluctuations (Amounts in NOK million) Change in interest rates -1 percentage point +1 percentage point Impact on interest expense (- indicates higher expense) 47 -47 Gains and losses on interest rate swaps recognised in profit or loss -131 131 Total impact on profit before tax -84 84 Gains and losses on hedging instruments, cash flow hedges -57 57 Total impact on comprehensive income (before tax) -141 141

The table shows a partial risk analysis of how the Group’s pre-tax profit would be affected by a parallel 1% increase/decrease in the yield curve. It also shows the impact on other comprehensive income and expenses as a result of certain interest rate derivatives being designated as cash flow hedges. All impacts are shown before tax. The analysis only covers interest-bearing liabilities measured at amortised cost under IFRS 9 and interest rate derivatives.

Breakdown of interest rates by currency 2018 2017 Nominal average interest rate, NOK 3,1 % 3,3 % Nominal average interest rate, euros 2,0 % 2,0 %

Fixed-interest periods within loan portfolio* (Amounts in NOK million) 1-3 years 3-5 years 5-10 years NOK-denominated loans 2 836 2 776 2 776 Euro-denominated loans 2 061 1 963 1 963 Total 4 897 4 739 4 739

* The table takes into account the impact of interest rate swaps and shows the average volume of hedged loans in the three time frames.

CREDIT RISK

Credit risk is the risk that a party to a cash-settled or physical trade will cause his counterparty to incur a loss by failing to fulfil his obligations.

Agder Energi takes on counterparty risk by selling and distributing electricity, and by selling other goods and services. For receivables measured at amortised cost, a provision is made for expected bad debts. For 2018, provisions have only been made for trade ­receivables; see Note 18. The credit risk arising from receivables is virtually identical to the carrying amount on the statement of ­financial position; see Notes 17 and 18.

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The trading of financial instruments also gives rise to counterparty risk. The majority of cash-settled electricity contracts are cleared through NASDAQ. For these contracts, there is assumed to be little counterparty risk. For all other electricity contracts, the maximum exposure to any individual counterparty is determined based on an internal credit rating. The credit rating is based on information such as key financial figures. Counterparties are then grouped in various risk classes, each of which is allocated a maximum exposure level. Bilateral contracts are subject to limits on exposure to individual counterparties, both in terms of value and duration.

In order to limit credit risk, bank guarantees are sometimes demanded when a contract is signed. Parent company guarantees are also used. In those cases, the parent company is assessed and classified in the normal way. Agder Energi has good procedures for ensuring that outstanding receivables are paid on time. An ageing analysis of customers is continuously monitored. Historically Agder Energi’s losses on its receivables have been low.

The maximum credit risk arising from derivatives is virtually identical to the carrying amount on the statement of financial ­position; see Note 25. For energy derivatives, the credit risk associated with all contracts traded through NASDAQ is limited by the fact that counterparties provide cash collateral or bank guarantees. For bilateral contracts, including long-term electricity ­contracts with industrial customers, there is not normally any such security.

The table below shows a reconciliation of the gross amount, amount offset and carrying amount for financial instruments with offset agreements or similar agreements. For Agder Energi, this is only relevant to derivatives. A financial asset and financial ­liability are shown net on the statement of financial position if Agder Energi has a legally enforceable right to set-off the asset and liability, and if it intends to settle on a net basis.

Financial assets (Amounts in NOK million) Gross Amount Carrying amount offset amount Energy derivatives 6 911 5 918 993 Currency and interest rate derivatives 34 13 21 Total derivatives (non-current and current) 6 945 5 931 1 014

Financial liabilities (Amounts in NOK million) Gross Amount Carrying amount offset amount Energy derivatives 7 685 5 918 1 767 Currency and interest rate derivatives 505 13 492 Total derivatives (non-current and current) 8 190 5 931 2 259

LIQUIDITY RISK Agder Energi is exposed to liquidity risk arising from the fact that its liabilities do not mature at the same time as when cash flows are generated, as well as from variations in margin requirements and settlement dates for futures traded through NASDAQ. Agder Energi manages this risk through liquidity forecasts and simulations, as well as by establishing minimum liquidity requirements. Agder Energi uses a NOK 500 million credit facility with a bank as a reserve for liquidity requirements relating to NASDAQ. In addition, Agder Energi­ has set up NOK 1,500 million of credit facilities with banks to protect itself against refinancing risk. This amount is big enough to provide sufficient time to set up alternative financing arrangements. The parent company has also set up a cash pooling arrangement with an associated NOK 500 million overdraft facility. At the close of the year, the Group had NOK 2,500 million in total in unused credit facilities. The capital markets consider Agder Energi to be a low-risk borrower, and the Group has good access to credit.

Liquidity risk is reassessed regularly. The Group finance department is responsible for ensuring that the Group has adequate liquidity within the framework of the finance strategy. Key figures relating to liquidity risk are included in the Group’s risk report to the Board of Directors. Targets have been established for the minimum remaining term to maturity of the debt portfolio, and credit facilities with banks shall cover all loans maturing within at least 9 months.

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Maturity structure of liabilities (Amounts in NOK million) Due in Due in Due in Due in Due in Due after Unspecified 2019 2020 2021 2022 2023 2023 Bonds and liabilities to financial institutions 1 359 1 350 1 085 1 221 747 3 185 0 Commercial paper and overdraft facility 300 0 Interest payments 243 214 186 166 140 418 0 Total interest-bearing liabilities 1 902 1 564 1 271 1 387 887 3 603 0

Financial liabilities at fair value through profit or loss 911 551 221 67 35 142 1 090 Other non-interest-bearing current liabilities 3 311 0 0 0 0 0 0 Total non-interest-bearing liabilities 4 222 551 221 67 35 142 1 090

Total 6 124 2 115 1 492 1 454 922 3 745 1 090

Breakdown of loans by currency (Amounts in NOK million) 2018 2017 NOK-denominated loans 6 278 6 370 Euro-denominated loans 2 999 2 769 Total 9 277 9 139

The Group has 222 million euros of euro-denominated loans. In addition, Agder Energi has used basis swaps to convert NOK 1,000 million of loans into 107 million euros of euro-denominated loans. This is reflected in the table above. The fair value of the swaps at the end of 2018 was NOK -93 million, which was included under derivatives on the statement of financial position; see Note 26. Basis swaps are contracts to swap principal and interest payments between currencies. When the contract expires, the principal is swapped back to the original currency using the exchange rate when the contract was signed.

Euro-denominated loans are used as cash flow hedges to secure future cash flows in euros, but hedge accounting is not used.

NOTE 29 ACCOUNTING HEDGES

Agder Energi has various interest swaps linked to specific loans that serve as cash flow hedges, i.e. they are variable-to-fixed ­interest rate swaps. The face value of the hedged items is 91 million euros.

In addition to the above, until the end of 2013 Agder Energi had designated 168 million euros worth of loans as cash flow hedges of highly probable future revenues from electricity sales. As of 2014, Agder Energi decided not to meet the documentation ­requirements in relation to accounting for these foreign currency loans as hedges. Hedge accounting was no longer used for these loans after that point. Unrealised foreign exchange losses on the loans that arose during the period of hedge accounting will be reversed through profit or loss between now and 2028 in parallel with the recognition of the hedged electricity sales.

For its other financial hedging relationships, the Group does not satisfy the extensive documentation requirements specified in the IFRS rules on hedge accounting.

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(Amounts in NOK million) 2018 2017 Fair value of derivatives designated as hedging instruments Derivatives designated as fair value hedges -4 1 Derivatives designated as cash flow hedges -76 -76 Total fair value of derivatives designated as hedging instruments -80 -75

Fair value hedges Gains/losses on derivatives used as fair value hedges -4 -54 Gains/losses on hedged items in fair value hedges, hedged risk 4 54 Hedge ineffectiveness recognised in profit or loss 0 0

Cash flow hedges Gains/losses recognised in the SoCI 0 23 Reclassified to profit or loss 11 0 Total gains/losses on hedging instruments recognised in the SoCI 11 23

Cash flow hedge ineffectiveness recognised in profit or loss 0 0

NOTE 30 MORTGAGED ASSETS, LIABILITIES AND GUARANTEES ISSUED

Mortgages Agder Energi AS has no mortgage debt. NOK 11 million of the lease liabilities are classified as finance leases and hence included on the statement of financial position.

Liabilities and guarantees issued Agder Energi has no covenants relating to financial key figures in its loan agreements. Agder Energi’s loan agreements do contain negative pledge clauses, which also cover its subsidiaries. This means that any new security interests require the consent of the lenders.

Agder Energi has NOK 712 (914) million in off-statement of financial position bank guarantees. NOK 398 (124) million of this relates to cash-settled electricity trading/settlement, NOK 55 (50) million to tax deductions at source, NOK 177 (572) million to settlement/payment guarantees and NOK 82 (168) million to contractual guarantees.

At the close of the year, the parent company had issued guarantees worth NOK 20 (20) million in relation to subsidiaries’ external liabilities.

Off-statement of financial position contractual obligations At any given time the Group has several ongoing investment projects that involve obligations to fulfil contracts with subcontractors. The Group also has obligations arising from its ownership interests in joint arrangements and water management associations; cf. Note 16.

Electricity from the generation portfolio has been sold in advance through physical contracts with industrial clients that are not included on the statement of financial position. These contracts form part of the risk management strategy for electricity generation; see Note 28. Similarly, the retail portfolio offers physical fixed-price contracts. The exposure arising from them is hedged as described in Note 28.

Agder Energi Varme has entered into a long-term contract to buy heating energy from the municipally-owned enterprise Returkraft. The contract, which runs for 20 years with an optional extension, commits Agder Energi Varme to buying an agreed volume from Returkraft’s waste-to-energy plant in Kristiansand from 2010 onwards.

Since 2010, Agder Energi has had its head office in leased premises at Kjøita in Kristiansand. It has signed a 15+5-year lease on the ­building with the lessor Kjøita 18 AS. In addition, several companies in the Group have leased cars. NOK 83 million was expensed in relation to these leases in 2018.

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NOTE 31 CONTINGENT LIABILITIES AND EVENTS AFTER THE END OF THE REPORTING PERIOD

Agder Energi’s operations are extensive, and it can therefore get involved in major and minor disputes from time to time.

Contingent liabilities Tax The Central Tax Office for Large Enterprises (Sfs) has decided to deny Agder Energi Vannkraft the right to deduct the resource rent for the 85 GWh of free electricity that it has supplied annually in the period since 2011. Agder Energi Vannkraft does not consider that Sfs has any justification for not allowing this to be deducted, and has appealed the decision to the Tax Appeals Board. Based on the ­precautionary principle, the financial statements assume that the company will not be able to deduct the value of the free electricity it supplies from its resource rent. On account of negative resource rent carryforwards, there would also be little immediate impact on cash flows. However, in the future it could increase the Group’s tax expense and reduce its cash flows by NOK 5-10 million per year.

Agder Energi Nett has been notified by Sfs of a change in its tax assessment for the smart meter project. Sfs considers that certain items that Agder Energi has expensed for tax purposes should be capitalised. The change would result in a NOK 59 million reduction in the deferred tax liabilities on the statement of financial position and an equivalent increase in the tax payable. It would only have a modest impact on profit. Agder Energi Nett disagrees with the decision and has appealed it to the Tax Appeals Board. The financial statements reflect the view expressed by Sfs in its notice.

Concession power in the Mandal river system In conjunction with Royal Decree of 6 December 2013 relating to further exploitation of Lake Skjerkevatn and Royal Decree of 3 February 2017 on the so-called Åseral projects, the Ministry of Petroleum and Energy (OED) has changed the price terms for some of Agder Energi­ Vannkraft’s existing obligations to supply concession power (approximately 30 GWh). Agder Energi Vannkraft had expected the extra electricity generated under the new licences to be subject to the OED price, but thought that electricity generated under the existing ­licences granted prior to 1959, would continue to be supplied at the cost at the relevant power station. The change in the price terms may result in an annual loss of revenue of NOK 2-3 million.

Agder Energi considers that the OED has no grounds to change the price terms for older licences in conjunction with issuing the two aforementioned licences.

Agder Energi tried to get the OED to overturn its decision on the price terms, but finally it sued the state for having taken an invalid administrative decision. The Group’s suit was rejected by Oslo district court, but it has decided to appeal that court’s decision to Borgart- ing Court of Appeal. No date has been set yet for the hearing of the appeal.

NOTE 32 MANAGEMENT COMPENSATION, ETC. Board of Directors

The compensation of the Board of Directors and Corporate Assembly for 2018 was NOK 1,305,800 and NOK 11,200 respectively. The equivalent figures in 2017 were NOK 1,455,800 and NOK 17,200 respectively.

The Board members are not entitled to any special termination benefits such as bonuses, profit-sharing or options.

All of the stated figures exclude employers’ NICs.

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Board of Directors (Amounts in NOK) Period Directors’ fees Board meetings attended Lars Erik Torjussen, chair Whole year 354 200 9 Tine Sundtoft, deputy chair Whole year 170 000 9 Jill Akselsen, Board member Whole year 125 000 9 Leif Atle Beisland, Board member 2) Whole year 150 000 9 Marit Grimsbo, Board member 1) Whole year 0 9 Siw Linnea Poulsson, Board member 1) 2) Whole year 0 9 Steinar Bysveen, Board member 1) Until August 0 4 Jon Vatnaland, Board member 1) From August 0 4 Steinar Asbjørnsen, Board member 1) Until September 0 5 Asbjørn Grundt, Board member 1) From September 0 5 Johan Ekeland, employee representative Whole year 110 000 7 Gro Granås, employee representative 2) Whole year 110 000 9 Tore Kvarsnes, employee representative Until May 45 800 4 Oddvar Emil Berli, employee representative From May 64 200 5 Øyvind Østensen, employee representative Until August 64 200 5 Sverre Halvard Hamre, employee representative From August 45 800 4

1) Employees of Statkraft are not paid Directors’ fees. 2) Member of the Board’s audit committee 3) The chairman’s fee is NOK 250,000, and the excess is extra fee in connection with merger negotiations with Skagerak Energi during the winter and spring 2018. In 2018, the audit committee appointed by the Board received NOK 25,000 in fees.

In 2018, Board members’ deputies received NOK 67,000 in fees.

None of the Board members received compensation from any other companies in the Group, with the exception of the employee representatives, who receive salaries for their ordinary jobs. Their compensation as Agder Energi employees is not included in the above figures. No Board members have any loans from the company.

Senior management team (Amounts in NOK 000s) Period Salary Bonus Other Total Pension benefits 1) taxable expense income Tom Nysted – CEO Whole year 3 357 138 3 495 634 Pernille K. Gulowsen – CFO Whole year 1 910 111 2 021 815 Unni Farestveit – CSR Director Whole year 1 906 95 2 001 890 Steffen Syvertsen – Business Area Director, Energy Whole year 2 073 555 114 2 742 279 management 2) Anders Gaudestad – Business Area Director, Marketing Whole year 1 875 116 1 991 235 Frank Håland – Director of Shared Services 3) Whole year 1 913 530 113 2 556 240 Jan Tønnessen – Business Area Director, Whole year 1 906 111 2 017 261 Hydroelectric Power

1) Other benefits include mileage allowances, mobile phones and other benefits. A flat in Kristiansand has been made available to the CEO. 2) Bonus earned in 2017 and paid out in 2018. This amount includes holiday pay that will be received in 2019. 3) Bonus earned and paid out in 2018. This amount includes holiday pay that will be received in 2019.

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Loans/guarantees issued and share option schemes

No members of the senior management team have been granted loans or had guarantees issued on their behalf by Agder Energi. Agder Energi does not have any share option schemes for management or other employees.

Bonuses and pension plans In 2018 the Director of Shared Services was entitled to a bonus worth up to three months’ gross basic salary based on an assessment of the results achieved against defined goals. The rest of the senior management team have no bonus agreements for 2018.

Tom Nysted will by agreement retire from his position as CEO in 2019, on reaching the age of 67. Nysted will remain in the employment of Agder Energi, and will be available to perform various tasks for the Group by agreement. He will receive 75% of his annual salary each year until the age of 70, at which point he will retire and start drawing a pension equivalent to around 66% of his qualifying salary. The pension benefit at 70 is equivalent to 16/30 of the full pension benefit less National Insurance Scheme and the Group’s public sector occupational pension plan.

For other members of the senior management team, the notice period is also six months. There are no special agreements on termination­ compensation. The executive directors Pernille K. Gulowsen and Unni Farestveit are members of a public sector defined benefit plan. Their pension agreements state that their qualifying salary shall be based on their regular salary, and the pension expenses­ include retirement pension benefits in excess of 12G, which are not covered by the National Insurance Scheme or the public sector occupational pension plan. In order to receive this pension, they must have 30 years of qualifying service. Jan Tønnessen,­ ­Steffen Syvertsen, Frank Håland and Ander Gaudestad have defined contribution pension plans in line with the Group’s standard pension plan.

NOTE 33 RELATED PARTIES

All associates and joint arrangements specified in Note 16 are classified as related parties of Agder Energi. The Group had NOK 14 million of sales to such companies in 2018 and NOK 5 million in 2017. Purchases from those companies amounted to NOK 126 million in 2018. The people specified in Note 32, who are members of the Group’s senior management team or Board of Directors, are also related parties of Agder Energi.

Agder Energi’s largest shareholder is Statkraft Industrial Holding, which owns 45.525% of the shares in the company. Sales to ­companies in the Statkraft Group amounted to NOK 26 million in 2018 and NOK 29 million in 2017. Purchases from those companies amounted to NOK 53 million in 2018 and NOK 54 million in 2017. Statkraft Industrial Holding AS is also a joint owner of several of the joint arrangements in which Agder Energi holds an ownership interest.

All transactions with related parties are carried out on an arm’s length basis.

NOTE 34 ACQUISITIONS, DISPOSALS AND BUY-OUT OF NON-CONTROLLING INTERESTS

Acquisitions Agder Energi did not acquire any new companies in 2018, but it did increase its ownership interest in Nordgröön Energie GmbH.

Acquisitions in 2018 Company Country Interest bought in Ownership interest Activities 2018 in % at 31/12/2018 Nordgröön Energie GmbH Germany 20,9 85,0 Market access for small electricity generating companies Acquisitions in 2017 Company Country Interest bought in Ownership interest Activities 2017 in % at 31/12/2017 Markedskraft Deutschland GmbH * Germany 100,0 100,0 Portfolio manage- ment Entelios AG Germany 100,0 100,0 Demand response Systempartner AS Norway 100,0 100,0 IT operations

* The name has been changed to Agder Energi Solutions GmbH

The table above shows the businesses that were acquired in 2017. All acquisitions are accounted for using the acquisition method. The table does not include capital increases or other financing from Agder Energi.

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Overall calculation of net assets and goodwill at the time of acquisition for acquisitions in 2017 (Amounts in NOK million) Carrying amounts (IFRS) at Asset write-up Acquisition SoFP acquisition date Intangible assets 10 48 58 Property, plant and equipment 5 0 5 Trade debtors and other current receivables 28 0 28 Bank deposits 7 0 7 Deferred tax 0 -10 -10 Trade payables and other current liabilities -30 0 -30 Net assets 20 38 58 Non-controlling interests 0 0 0 Net assets acquired 20 38 58 Goodwill 0 0 0 Total net assets acquired plus goodwill 20 38 58

Cash consideration for shares 47 Total consideration 47

A NOK 11 million gain was recognised in conjunction with one of the acquisitions since the value of the net recognised assets ­exceeded the consideration paid. This was due to expected future losses at the acquisition date.

Disposals In 2018 Agder Energi sold 51% of the shares in Otera Infra AS. The transaction was completed in August, and as of the completion date the company was reclassified from being a subsidiary to being an associate. The transaction only had an insignificant impact on the consolidated financial statements for 2018.

In 2017 Agder Energi sold NetNordic Holding AS. Discontinued operations in 2017 therefore refers to that company.

The table below shows how the figure for profit from discontinued operations is calculated, broken down into the operating­performance until disposal and the gain/loss on disposal.

(Amounts in NOK million) 2018 2017 Operating revenues 0 433 Operating expenses 0 -407 Operating profit 0 26 Net financial income/expenses 0 -3 Profit before tax 0 23 Tax expense 0 -3 Net income 0 20 Gain on disposal of discontinued operations 0 224 Tax on gain on disposal of discontinued operations 0 0 Net income from discontinued operations 0 244

Net cash provided by operating activities 0 25 Net cash provided by/used in investing activities 0 178 Net cash provided by financing activities 0 11 Net cash flow from discontinued operations 0 214

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NOTE 35 GROUP STRUCTURE

The table below shows the companies in the Agder Energi Group at 31/12/2018.

Subsidiaries Ownership interest in %* Country Agder Energi Nett AS 100,0 Norway Agder Energi Vannkraft AS 100,0 Norway Agder Energi Kraftforvaltning AS 100,0 Norway LOS AS 100,0 Norway Entelios AS 100,0 Norway Entelios AB 100,0 Sweden Entelios Trading AB 100,0 Sweden Entelios ApS 100,0 Denmark Entelios OY 100,0 Finland Enfo AS 100,0 Norway Entelios AG 100,0 Germany Entelios GmbH 100,0 Germany Nordgröön Energie GmbH 85,0 Germany AE Alfa AS 100,0 Norway Agder Energi Fleksibilitet AS 100,0 Norway Otera AB 67,0 Sweden Otera Ratel AB 100,0 (67,0) Sweden European Electric Technology AB 100,0 (67,0) Sweden Agder Energi Varme AS 100,0 Norway Norsk Varme- og Energiproduksjon AS 100,0 Norway Baltic Hydroenergy AS 100,0 Norway UAB Baltic Hydroenergy 100,0 Lithuania JSC Latgales Energetika 64,0 Latvia Stoaveien 14 AS 100,0 Norway Stoa 192 AS 100,0 Norway Stoa 234 AS 100,0 Norway Agder Energi Venture AS 100,0 Norway NEG AS 74,5 Norway Norsk Energigjenvinning AS 100,0 (74,5) Norway NEG Skog AS 100,0 (74,5) Norway Norsk Biobrensel AS 100,0 (74,5) Norway Norbio AB 100,0 (74,5) Sweden Norbio Energi AS 100,0 (74,5) Norway HPE Holding AS 100,0 Norway Cleanpower AS 91,7 Norway Bioenergy AS 70,0 Norway Bio Energy Sales AS 100,0 (70,0) Norway Lahaugmoen Drift AS 100,0 (70,0) Norway Adaptic AS 95,0 Norway Verdisikring Safety AS 100,0 (95,0) Norway Ledlight Group AS 100,0 (95,0) Norway Meventus AS 100,0 Norway Meventus ApS 100,0 Denmark Meventus AB 100,0 Sweden ReSiTec AS 92,5 Norway Netsecurity AS 85,4 Norway

* Figures in brackets indicate Agder Energi AS’s indirect ownership interest in companies where it holds minority interests through intermediate companies.

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Non-controlling interests The majority of the Group’s non-controlling interests relate to the subsidiary groups Nordgröön Energie GmbH and Otera AB. Their turnover and profit are shown in the table below, together with a summary statement of financial position.

Nordgröön Energie Otera AB (Amounts in NOK million) 2018 2017 2018 2017 Operating revenues 1 740 627 737 560 Net income -40 19 31 -32 Non-controlling interest’s share of net income -19 7 10 -10

Assets 273 82 250 180 Liabilities 271 67 336 301 Equity 1) 2 15 -86 -121 Non-controlling interest’s share of equity 0 6 0 0

1) In the case of Otera AB, the parent company is a pure holding company, and the group’s activities are carried out through two subsidiaries. The group’s negative equity is due to a business combination that resulted in the parent company being financed through a vendor credit from its sister company Otera Sverige AB.

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IntroductrionInnledningIntroduction EierstyringCorporateCorporate governance og governanceselskapsle- AgderThe TheAgder Energi Agder Energi konsern Energi Group Group AgderAgder Energi Energi AS ASSamfunnsrapportCSR CSR III < >

Agder Energi Varme provides environ- mental friendly district heating and cooling. In Kristiansand, it uses waste heat from Glencore and Returkraft.

AGDER ENERGI AS

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AGDER ENERGI AS FINANCIAL STATEMENT

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Income statement 93 Statement of financial position 94 Statement of cash flows 95 Accounting principles 96

NOTES Note 1 Intra-group transactions and balances 98 Note 2 Employee benefits, management compensation, etc. 98 Note 3 Pensions 99 Note 4 Auditor’s fee 101 Note 5 Other operating expenses 101 Note 6 Financial income and expenses 101 Note 7 Tax 102 Note 8 Intangible assets 103 Note 9 Property, plant and equipment 103 Note 10 Other non-current financial assets 103 Note 11 Investments in subsidiaries and associates 104 Note 12 Cash and cash equivalents 105 Note 13 Equity 105 Note 14 Interest-bearing liabilities 105 Note 15 Other non-interest-bearing current liabilities 106 Note 16 Provisions 106 Note 17 Market and financial risk 106 Note 18 Contingent liabilities 107 Note 19 Mortgaged assets, liabilities and guarantees issued 107

Auditor´s report 108 Alternative performance measures (APM) 112

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INCOME STATEMENT

(Amounts in NOK million) Note 2018 2017

Other operating revenues 1 355 268 Total operating revenues 355 268

Employee benefits 2, 3 -190 -198 Depreciation and impairment losses 8, 9 -11 -15 Other operating expenses 1, 4, 5 -226 -177 Total operating expenses -428 -390

Operating profit -72 -122

Financial income 1, 6 1 833 2 196 Financial expenses 1, 6 -792 -1 052 Net financial income/expenses 1 042 1 144

Profit before tax 969 1 022

Tax expense 7 -173 -87

Net income 796 935

Allocation of profit: Proposed dividends 13 592 606 Transferred to other reserves 13 204 329 Total appropriations 796 935

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STATEMENT OF FINANCIAL POSITION

(Amounts in NOK million) Note 2018 2017

Intangible assets 8 0 7 Property, plant and equipment 9 35 31 Investments in subsidiaries 11 3 379 3 444 Investments in associates 11 108 63 Other non-current financial assets 10 9 780 8 748 Total non-current assets 13 302 12 294

Receivables 1 1 665 1 758 Cash and cash equivalents 12 0 177 Total current assets 1 665 1 935

TOTAL ASSETS 14 967 14 229

Paid-in capital 13 1 907 1 907 Retained earnings 13 1 518 1 429 Total equity 3 425 3 337

Deferred tax 7 80 82 Provisions 3, 16 369 358 Interest-bearing non-current liabilities 14 8 940 8 430 Total non-current liabilities 9 389 8 870

Interest-bearing current liabilities 14, 17 729 600 Tax payable 7 23 7 Other non-interest-bearing current liabilities 1, 13, 15 1 400 1 416 Total current liabilities 2 153 2 023

TOTAL EQUITY AND LIABILITIES 14 967 14 229

Kristiansand, 2. April 2019 Board of Directors of Agder Energi AS

Lars Erik Torjussen Tine Sundtoft Jill Akselsen Leif Atle Beisland Jon Vatnaland Chair Deputy chair Board member Board member Board member

Marit Grimsbo Asbjørn Grundt Siw Linnea Poulsson Johan Ekeland Sverre Hallvard Hamre Board member Board member Board member Board member Board member

Oddvar Emil Berli Gro Granås Tom Nysted Board member Board member CEO

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STATEMENT OF CASH FLOWS

(Amounts in NOK million) Note 2018 2017

Cash flow from operating activities Profit before tax 969 1 021 Depreciation and impairment losses 6, 8, 9 120 75 Cash flows from investments in subsidiaries -1 113 -1 238 Tax paid -6 -91 Change in net working capital, etc. -878 -42 Net cash provided by operating activities -908 -275

Investing activities Purchase of property, plant, equipment and intangible assets -10 -3 Acquisitions/financial investments and equity investments in subsidiaries -250 -29 Net change in loans -265 -754 Sale of property, plant, equipment and intangible assets 31 2 Sale of businesses/financial assets 59 24 Net cash used in investing activities -435 -760

Financing activities New long-term borrowings 1 424 1 410 Repayment of long-term borrowings -956 -1 077 Net change in current interest-bearing liabilities 129 -250 Intra-group distributions received 672 855 Intra-group distributions paid out -496 -239 Dividends received from subsidiaries 999 376 Dividends paid -606 -607 Net cash used in financing activities 1 166 468

Net change in cash and cash equivalents -177 -567

Cash and cash equivalents at start of year 177 744 Cash and cash equivalents at end of year 0 177

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ACCOUNTING PRINCIPLES

The financial statements have been pre- which are expensed as they are incurred. over the contract period and the value of sented in compliance with the Norwegian This means that expenses associated with the portfolio is kept off the statement of Accounting Act and generally accepted intangible assets are included on the state- financial position. ­accounting principles. ment of financial position if it is considered probable that future economic benefits at- Foreign currency and currency Accrual, classification and measure- tributable to the assets will flow to the com- instruments ment principles pany and it has been possible to reliably The finance department manages the In accordance with generally accepted measure the acquisition cost of the asset. Group’s overall exposure to currency risk. ­accounting principles, the financial state- To some extent Agder Energi AS acts as a ments are based on the historical cost, Property, plant and equipment counterparty within the Group when it revenue recognition, matching, conserva- Property, plant and equipment is depreci- does not make sense to hedge subsidiar- tism, hedging and congruence principles. ated in a straight line over its anticipated ies’ exposure to currency risk directly in In the event of uncertainty, best judge- useful life. Maintenance on property, plant the market. Where the parent company ment is applied. Financial statements are and equipment is considered an operating has acted as a counterparty in conjunction prepared using uniform principles that are expense, while upgrades and replacements with the need of subsidiaries to hedge applied consistently over time. The finan- are added to the acquisition cost of the their currency risk exposure arising from cial statements have been prepared on the asset and are depreciated together with electricity sales, the contracts are accounted assumption of the business being a going the asset. The distinction between mainte- for as part of the Group’s currency hedging concern. nance and upgrades/improvements is activities. These contracts are presented on judged on the basis of the condition of the the statement of financial position at fair Recognition of revenues and expenses asset when it was acquired. value, with changes in fair value recognised Revenues and expenses are recognised in through profit or loss. profit or loss when they are earned/­ Non-current financial investments incurred. Revenues from the sale of goods The historical cost method is used for Receivables are recognised on delivery. Revenues from shares, bonds and other financial instru- Trade debtors and other receivables are services are recognised in the income ments. This means that shares/ownership presented on the statement of financial statement as they are supplied. interests are carried at cost, and any divi- position at their nominal value less antici- dends received are recognised as other fin­ pated bad debts. Provisions for bad debts General principles for measurement ancial income. Dividends and intra-group are made on the basis of individual assess- and classification distributions received are recognised if the ments of the individual receivables. Current assets and current liabilities cover underlying profit was earned while the items that are due for payment within one ­asset was owned by the Group. Intra-group Cash pooling arrangement year of the transaction date, as well as distributions received are recognised in the Agder Energi AS is part of a cash pooling items relating to the business cycle. Other year that they are allocated by subsidiaries.­ arrangement with its subsidiaries. This items are classified as non-current assets Dividends from subsidiaries are also recog- means that the Group has a joint bank or non-current liabilities. Current assets nised in the year that they are appropriated ­account for short-term deposits and short- are carried at the lower of cost and fair by the subsidiary. Investments are written term loans. Interest income and interest value. Current liabilities are carried at their down to fair value if there is evidence of expenses arising from the cash pooling nominal value on the initial date. other-than-temporary impairment. Divi- arrangement are classified as external in dends from associates are recognised the company’s income statement. Non-current assets are carried at cost, but when they are approved. are written down to the recoverable amount Pensions if there is evidence of impairment, in com- Interest rate swaps Defined benefit pension plan pliance with the Norwegian accounting Interest rate swaps are used to match the Pension costs and pension liabilities are standard on the impairment of non-current duration and interest rate sensitivity of the calculated using a linear accumulation assets. company’s debt portfolio to the Group’s model based on assumptions relating to policy and strategy. Interest rate swaps are discount rates, projected salaries, the level Intangible assets managed within the context of the Group’s of benefits from the National Insurance Intangible assets are included on the state- overall debt portfolio. Instruments in the Scheme and future returns on pension ment of financial position if they meet the hedging portfolio thus meet the criteria plan assets, as well as actuarial calcula- criteria for capitalisation, with the excep- for hedge accounting, which means that tions of mortality, voluntary turnover, etc. tion of research and development costs, all profit and loss effects are recognised Pension plan assets are measured at their

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fair value, and have been deducted in the likely that they will be realised in the future. an uncertain liability will need to be settled, net pension liabilities presented on the Tax on equity transactions is recognised information is provided in the notes. Contin- statement of financial position. Remea- directly in equity. gent assets are not recognised, but if there surements over the course of the year are is a greater than 50% probability that the recognised in the statement of financial Liabilities company will receive payment, information position at the end of the year, so that the Agder Energi AS uses the amortised cost is provided in the notes. The amount is not carrying amount always reflects the full principle, and consequently the effective estimated if it would be inappropriate to do extent of the liabilities. In the event of interest rate method, for interest and liabili- so under generally accepted accounting changes in pension obligations arising ties. Under the effective interest rate meth- principles. Furthermore, under generally from plan amendments, the portion of the od, the carrying amount of a loan is the ­accepted accounting principles entities change that has already been accrued at sum of future cash flows attributable to the shall be able to recognise liabilities/provide the time of the amendment is recognised loan discounted by the original effective in- information based on best judgement with- directly in the income statement. Pension terest rate calculated for the cash flows. out this prejudicing the outcome of any expenses and net pension liabilities This means that loan arrangement fees are court case. ­include a charge for employers’ national deducted on initial recognition, and that insurance contributions. over the duration of the loan, the difference Statement of cash flows between the nominal interest rate (the rate The statement of cash flows has been pre- Defined contribution plan charged) and the effective interest rate (the pared using the indirect method. Cash and For defined contribution plans, the pension rate expensed) is recognised in the state- cash equivalents includes cash, bank expense is equivalent to the premiums/ ment of financial position under amortisa- ­deposits and other short-term, liquid contributions paid over the course of the tion. In practice loans are therefore initially ­investments that can be converted into year. recognised at their face value less arrange- known cash values immediately and at ment fees, which means that the debt is ­insignificant risk, and that mature less Taxes not carried on the statement of financial than three months after their acquisition Income tax is calculated in accordance position at its nominal value. dates. with standard tax rules. The tax expense in the income statement consists of tax pay- A provision is made for Agder Energi AS’s able and changes in deferred tax liabilities/ proposed dividends at 31 December. assets. Tax payable is calculated on the taxable profit for the year. Deferred tax lia- Contingent liabilities and contingent bilities/assets are calculated on the basis assets of the temporary differences that exist be- If there is a greater than 50% probability tween accounting and tax values, as well that an uncertain liability will need to be as the tax effect of any loss carryforwards. settled, a provision is made based on a best Deferred tax assets are only recognised on estimate of what the settlement will be. If the statement of financial position if it is there is a smaller than 50% probability that

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NOTES

NOTE 1 INTRA-GROUP TRANSACTIONS AND BALANCES

(Amounts in NOK million) Note 2018 2017

Intra-group balances Other non-current financial assets 10 8 580 8 157 Trade receivables 39 30 Other current receivables 1 548 1 675 Total receivables 10 167 9 862

Trade payables 15 3 1 Other current liabilities 15 647 630 Total liabilities 650 631

Revenues and expenses relating to intra-group transactions Other operating revenues 291 248 Total operating revenues 291 248

Other operating expenses 30 22 Total operating expenses 30 22

Cash flows from investments in subsidiaries 6 1 113 1 238 Other interest and financial income 258 242 Other interest and financial expenses 31 15 Net financial income/expenses 1 341 1 466

NOTE 2 EMPLOYEE BENEFITS, MANAGEMENT COMPENSATION, ETC.

(Amounts in NOK million) Note 2018 2017

Employee benefits Salary 163 149 Employers’ National Insurance Contributions 23 21 Pension expense including employers’ NICs 3 -11 13 Other benefits and reimbursements 15 15 Total 190 198

Number of full-time equivalents at 31 Dec. 164 157

In conjunction with the sale of 51% of the shares in Otera Infra AS, the company’s defined benefit plan was transferred to Agder Energi AS and was closed. The transfer involved the pension liabilities of Otera Infra being merged into Agder Energi AS. This is what the impact on net income of closing the pension plan shown in the tables above relates to.

For details of management compensation and non-executive Directors’ fees at Agder Energi AS, please see Note 32 to the ­consolidated financial statements.

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NOTE 3 PENSIONS

The company’s pension plans For people taken on before 1 April 2007, the company has a defined benefit pension plan run by Agder Energi Pensjonskasse, which meets the legal requirements for public sector occupational pension plans. Employees taken on after that date are members of a ­defined contribution pension plan.

Defined benefit pension plans The Group has a funded public pension plan for its employees, which entitles them to defined future pension benefits, based on ­number of years of service and salary on reaching retirement age. Provisions for pension liabilities in the pension plan are calculated using a linear accumulation model based on methods and assumptions that comply with the relevant current accounting standard.

Pension liabilities were calculated by an independent actuary in December, and represent an estimate of the situation at 31 December 2017. Similarly, the gross pension plan assets at 31 December 2017 were estimated by the Group’s management in December.

Certain current and former senior managers are entitled to pension benefits over and above those covered by the company pension plan. Provisions for these plans are presented under unfunded pension liabilities.

Early retirement schemes (AFP schemes) Employees are covered by different AFP schemes, depending on whether they are part of the defined benefit or defined contribution pension plans.

Employees covered by the public pension plan have, in addition to their occupational pension, an early retirement scheme, known as an AFP scheme. This is a so-called public sector AFP scheme, set up as of 2011. The scheme does not receive any government ­subsidy. The company is therefore liable for all of its obligations under the scheme.

Employees covered by the defined contribution plan are entitled to a private AFP scheme. This AFP scheme is funded by contributions made by the employer. The contribution for 2017 was 2.5%.

Actuarial assumptions When calculating the pension expense and net pension liabilities, a number of assumptions have been made (see table below). The company uses the latest version of the Norwegian life tables (GAP 07), for life expectancy, probability of disability, etc.

(Amounts in NOK million) 2018 2017

The pension expense for the year has been calculated as follows Current service cost 15 12 Administration costs 2 1 Interest income/expenses on pension assets/liabilities -6 -7 Impact on net income of closing pension plan -30 - Employers’ National Insurance Contributions 2 2 Employee contributions -1 -1 Pension expense for the year, defined benefit plans -18 6 Defined contribution pension plans (including employers’ NICs) 7 6 Total pension expense recognised in the income statement -11 13

The total pension expense also includes unfunded plans for senior managers.

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Pension liabilities and pension plan assets (Amounts in NOK million) 2018 2017 Gross funded pension liabilities 827 367 Unfunded pension liabilities 151 128 Gross pension liabilities at 31 Dec. (including employers’ NICs) 978 495 Fair value of pension plan assets at 31 Dec. 1 255 771 Net pension liabilities at 31 Dec. -277 -277

Change in defined benefit pension liabilities Net defined benefit pension liabilities at 1 Jan. -277 -262 Pension expense recognised in profit or loss excl. employee contributions -17 9 Company contributions incl. employers’ NICs - -6 Pension benefits included under operating expenses -5 -4 Remeasurements 150 -14 Acquisitions through business combinations -127 - Net pension liabilities at 31 Dec. -277 -277

Net pension assets 429 404 Pension liabilities (*) 151 128 Net pension liabilities (+) / assets (-) at 31 Dec. -277 -277

Remeasurements are made up of: Gains (-)/losses (+) on gross pension liabilities 97 37 Gains (-)/losses (+) on pension plan assets 53 -51 Remeasurements recognised on statement of financial position 150 -14

Assumptions used to determine pension liabilities at 31 Dec. 2018 2017 Discount rate 2,70 % 2,30 % Annual wage growth 2,75 % 2,50 % Increase in the National Insurance Scheme’s basic amount (“G”) 2,50 % 2,25 % Annual indexing of pensions 1,75 % 1,50 %

The assumptions used to calculate pension liabilities almost entirely follow the Norwegian Accounting Standards Board’s guidelines on actuarial assumptions as of 31 December 2018.

Number of people covered by the pension plans 2018 2017 Defined benefit plan: current employees 69 73 Defined benefit plan: accrued entitlements and retired employees 704 319 Defined contribution plan: current employees 90 79 Current employees entitled to public sector AFP, and early retirees 61 61

In conjunction with the sale of 51% of the shares in Otera Infra AS, the company’s defined benefit plan was transferred to Agder Energi AS and was closed. The transfer involved the pension liabilities of Otera Infra being merged into Agder Energi AS. This is what the impact on net income of closing the pension plan shown in the tables above relates to.

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NOTE 4 AUDITOR’S FEE

Total fees paid to auditor for auditing and other services comprise the following:

(Amounts in NOK 000s excl. VAT) 2018 2017 Statutory audit 578 532 Other certification services 0 4 Tax advice 0 4 Other services not related to auditing 222 25 Total 800 565

NOTE 5 OTHER OPERATING EXPENSES

(Amounts in NOK million) 2018 2017 Property-related expenses, lease of machinery and office equipment 53 46 Purchase of plant and equipment 4 5 External services 147 110 Office supplies, telecommunications, postage, etc. 4 4 Travel expenses, subsistence allowances, mileage expenses, etc. 10 8 Sales, advertising, representation, membership fees and gifts 7 5 Other operating expenses 1 -1 Total 226 177

NOTE 6 FINANCIAL INCOME AND EXPENSES

(Amounts in NOK million) 2018 2017 Income from investments in subsidiaries* 1 113 1 238 Profit/loss on investments in associates 20 10 Exchange rate gain 412 707 Other interest and financial income 289 242 Total financial income 1 833 2 195

Impairment charge against non-current financial assets 109 60 Exchange rate losses 394 706 Other interest and financial expenses 289 286 Total financial expenses 792 1 052

Net financial income/expenses 1 042 1 144

* Profit/loss from investments in subsidiaries comprises allocated dividends, intra-group distributions from subsidiaries and gains on the disposal of subsidiaries. These amounts are recognised in the income statement as they are considered to reflect the return on the investment.

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NOTE 7 TAX

(Amount in NOK millions) 2018 2017 The tax expense consists of Income tax payable 171 126 Change in deferred income tax 2 -40 Corrections to previous years’ tax assessments -1 1 Tax expense in income statement 173 87

Tax payable on the statement of financial position Profit before tax 969 1 021 Permanent differences -199 -647 Change in temporary differences -25 151 Profit/loss for income tax purposes 746 525

Income tax payable 171 126 Taxable intra-group distributions -149 -119 Tax payable on the statement of financial position 23 7

Reconciliation of nominal tax rate with effective tax rate Profit before tax 969 1 021 Expected tax based on nominal rate 223 245 Tax effect of Non-deductible expenses/non-taxable income -46 -155 Corrections to previous years’ tax assessments -1 1 Impact of change in tax rate -4 -4 Tax expense in income statement 173 87 Effective tax rate 18 % 8 %

Breakdown of temporary differences/deferred tax assets Property, plant and equipment -12 -14 Pension liabilities 286 330 Derivatives 109 83 Other -17 -43 Total taxable (+)/deductible (-) temporary difference 366 357 Total capitalised deferred tax liabilities (+)/assets (-) 81 82

Changes in net deferred income tax over the year: Net deferred tax liabilities (+)/assets (-) at 1 Jan. 82 118 Correction to net deferred tax liabilities (+)/assets (-) for business combination 31 2 Change in net deferred tax liabilities (+)/assets (-) on items recognised in equity -34 3 Change in deferred tax liabilities (+)/assets (-) recognised through profit or loss 2 -40 Net deferred income tax liabilities (+)/assets (-) at 31 Dec. 81 82

Changes in deferred tax on items recognised in equity Remeasurements of pensions -34 3 Total change -34 3

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NOTE 8 INTANGIBLE ASSETS

(Amounts in NOK million) Software Cost as of 01/01/2018 36 Additions 0 Disposals 2 Cost as of 31/12/2018 35 Accumulated depreciation at 31/12/2018 32 Accumulated impairment losses at 31/12/2018 2 Carrying amount at 31/12/2018 0

Depreciation for the year 5 Impairment losses for the year 0 Useful life/depreciation period 3-8 år

NOTE 9 PROPERTY, PLANT AND EQUIPMENT

(Amounts in NOK million) Properties Vehicles, fixtures, Work in progress Total property, fittings, machinery, plant and equip- etc. ment Cost as of 01/01/2018 35 34 0 69 Additions 0 5 5 10 Disposals 0 16 0 16 Cost as of 31/12/2018 35 23 5 63 Accumulated depreciation at 31/12/2018 13 15 0 27 Accumulated impairment losses at 31/12/2018 0 0 0 0 Carrying amount at 31/12/2018 22 8 5 35

Depreciation for the year 2 4 0 6 Impairment losses for the year 0 0 0 0

Useful life/depreciation period 25 år - 3-8 år avskrives ikke

NOTE 10 OTHER NON-CURRENT FINANCIAL ASSETS

(Amounts in NOK million) Note 2018 2017 Loans to Group companies 1 8 580 8 157 Loans to associates 1 1 Investments in shares and ownership interests 2 2 Other non-current receivables 1) 769 184 Pension assets 3 429 404 Total non-current financial assets 9 780 8 748

1) Other non-current receivables includes foreign currency loans and a guarantee to NASDAQ

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NOTE 11 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

(Amounts in NOK million) Registered The company’s The company’s Ownership Carrying office equity profit/loss voting rights amount* Subsidiaries Agder Energi Vannkraft AS Kristiansand 2 481 950 100 % 1 937 Agder Energi Kraftforvaltning AS Kristiansand 12 1 100 % 20 Agder Energi Nett AS Arendal 908 -41 100 % 613 LOS AS Kristiansand 99 29 100 % 214 Entelios AB 1) Stockholm 62 15 100 % 146 Entelios AS Kristiansand 267 7 100 % 110 Otera AB 1) Stockholm -86 31 67 % 0 Agder Energi Varme AS Kristiansand 124 3 100 % 125 Agder Energi Venture AS 1) Kristiansand 168 20 100 % 68 Entelios GmbH 1) Berlin 6 -71 100 % 10 Stoaveien 14 AS Kristiansand 8 2 100 % 1 Stoa 192 AS Kristiansand 1 0 100 % 2 Stoa 234 AS Kristiansand 1 0 100 % 2 Baltic Hydroenergy AS 1) Kristiansand 33 1 100 % 34 Enfo AS Bærum 15 1 100 % 28 Entelios AG Munich -11 -32 100 % 34 Agder Energi Fleksibilitet AS Kristiansand 32 -4 100 % 36 AE Alfa AS Kristiansand 0 1 100 % -1 Total shares in subsidiaries 3 379

Associates and joint ventures 2) Otera Infra AS Kristiansand 60 6 49,0 % 14 North Connect KS** Kristiansand 138 -3 22,3 % 37 North Connect AS** Kristiansand 14 0 22,3 % 4 Grønn Kontakt AS *** Kristiansand 45 -26 47,2 % 52 Total for associates and joint ventures 108

* Carried at the lower of cost and fair value ** Associates *** Joint ventures

1) Subsidiaries of Agder Energi AS with subsidiary groups. For an overview of the Group’s organisation structure, see Note 35 of the consolidated financial statements. 2) The equity and profit of associates and joint ventures has been estimated for 2018.

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NOTE 12 CASH AND CASH EQUIVALENTS

(Amounts in NOK million) 2018 2017 Bankinnskudd konsernkontosystem -429 177 Sum -429 177

Agder Energi AS has set up a cash pooling arrangement with an associated NOK 500 million overdraft facility. Most subsidiaries in which the parent company holds an ownership interest of at least 50% take part in the cash pooling arrangement and are jointly and severally liable to the bank for the overdraft facility.

A NOK 55 million bank guarantee covering Agder Energi AS and its subsidiaries has been used as security for tax deductions at source.

NOTE 13 EQUITY

(Amounts in NOK million) Note Share Share Other paid-in Other reserves Total equity Egenkapital 01.01.2018 1 809 47 51 1 429 3 337 Estimatavvik pensjon 3 -115 -115 Årets resultat 796 796 Avsatt til utbytte 15 -592 -592 Fusjon -1 -1 Egenkapital 31.12.18 1 809 47 51 1 518 3 425

For details of share capital and shareholder information, please refer to Note 20 to the consolidated financial statements.

NOTE 14 INTEREST-BEARING LIABILITIES

(Amounts in NOK million) 2018 2017 Non-current liabilities with a term to maturity of more than 5 years Liabilities to financial institutions 1 325 866 Bonds 1 860 1 756 Total 3 185 2 622

Non-current liabilities with a term to maturity of less than 5 years Liabilities to financial institutions 1 385 1 584 Bonds 4 370 4 225 Total 5 755 5 809

Total interest-bearing non-current liabilities 8 940 8 430

Interest-bearing current liabilities Commercial paper 300 600 Deposits in cash pooling arrangement (overdraft facility) 429 0 Total interest-bearing current liabilities 729 600

Guarantees and obligations relating to interest-bearing non-current liabilities are described in greater detail in Note 19.

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NOTE 15 OTHER NON-INTEREST-BEARING CURRENT LIABILITIES

(Amounts in NOK million) Note 2018 2017 Trade payables 36 Intra-group trade payables 1 3 1 Unpaid government taxes and duties, tax deducted at source, etc. 14 13 Allocated dividends 13 592 606 Other current liabilities 120 129 Other current liabilities to Group companies 1 647 630 Total other non-interest-bearing current liabilities 1 400 1 416

NOTE 16 PROVISIONS

(Amounts in NOK million) Note 2018 2017 Pension liabilities 3 151 128 Other non-current provisions 218 230 Total provisions 369 358

In 2016, Agder Energi sold its ownership interest in Fosen Vind DA. The final transaction price depends on various future metrics and a large proportion of the amount received has therefore not yet been recognised as income. NOK 171 million of the company’s other non-current provisions are related to this. The remaining NOK 43 million represent a provision against a lease contract.

NOTE 17 MARKET AND FINANCIAL RISK

Risk management policy and strategy The Group’s Board of Directors has formulated an overall risk management policy containing frameworks and guidelines to ensure a uniform approach to risk management throughout the Group. In order to manage exposure to market and financial risk, and based on the risk management policy, separate risk strategies have been drawn up for the following areas:

• Production • Electricity trading • Retail market • Finance (interest rates and foreign currency)

One of the main purposes of the risk management policy and strategies is to hedge against fluctuations in future cash flows.

Electricity derivatives with subsidiaries and NASDAQ as counterparties Several of Agder Energi AS’s subsidiaries trade cash-settled electricity derivatives on NASDAQ. Formally, this involves Agder Energi AS acting as NASDAQ’s counterparty, and Agder Energi entering into identical contracts with the relevant subsidiaries in parallel. The company uses hedge accounting for these contracts, and so they are not capitalised. The net value of contracts with NASDAQ was NOK 432 million at 31 December 2018. The value of the company’s contracts with its subsidiaries was NOK -432 million.

Debt portfolio The Agder Energi Group’s whole loan portfolio is held by Agder Energi AS. This exposes the company to a significant interest rate risk. The Group has a central Finance department within Agder Energi, which has overall responsibility for banking services, financing, ­currency operations, corporate finance and other financial services.

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Interest rate risk is measured by modified duration, which is kept within a target period of 1 to 5 years. Rules on durations and other rules relating to interest rate portfolios, liquidity risk, etc. are given in the risk policy and finance strategy. The chosen strategy aims to minimise net financial expenses over the long term, while reducing risk to an acceptable level. Exposure to interest rate risk is measured and monitored. The group finance department is responsible for taking positions.

The parent company’s debt portfolios include foreign currency loans. 222 million euros in loans are used as a hedge against fluctuations­ in the Group’s revenues in that currency. Agder Energi AS has lent an equivalent amount in euros to Agder Energi Vannkraft AS. Agder Energi AS has also taken out interest rate and currency swaps for 107 million euros of mirrored loans provided to Agder Energi Vannkraft AS.

NOTE 18 CONTINGENT LIABILITIES

Agder Energi AS had no significant contingent liabilities at the end of the year.

NOTE 19 MORTGAGED ASSETS, LIABILITIES AND GUARANTEES ISSUED

Mortgages Agder Energi AS currently has no mortgage loans.

Liabilities and guarantees issued Agder Energi AS has no covenants relating to financial key figures in its loan agreements.

Agder Energi AS currently has no mortgage loans. The company’s loan agreements do contain negative pledge clauses, which also cover its subsidiaries. This means that any new security interests require the consent of the lenders.

Agder Energi AS has NOK 712 million in outstanding off-statement of financial position bank guarantees. Of this total, NOK 392 million comprises payment guarantees for electricity trading, NOK 177 million is an internal guarantee for transmission tariffs passed on to customers, NOK 82 million relates to contractual guarantees, NOK 55 million relates to tax deducted at source and NOK 6 million is a rent guarantee.

At the close of the year, the parent company had issued guarantees worth NOK 20 million in relation to external liabilities.

Contractual obligations Agder Energi Group leases office premises at Kjøita in Kristiansand. The lease contract is between Kjøita 18 AS and Agder Energi AS. Since 01/01/2017, the building has been owned by Arctic Securities. This has not resulted in any changes to the terms of the lease. At the end of the year, the contract had 7 years left to run, with a renewal option for a further five years.

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AUDITOR’S REPORT

Statsautoriserte revisorer Foretaksregisteret: NO 976 389 387 MVA Ernst & Young AS Tlf: +47 24 00 24 00

Gravane 12, NO-4610 Kristiansand www.ey.no Postboks 184, NO-4662 Kristiansand Medlemmer av Den norske revisorforening

INDEPENDENT AUDITOR’S REPORT

To the Annual Shareholders' Meeting of Agder Energi AS

Report on the audit of the financial statements

Opinion We have audited the financial statements of Agder Energi AS comprising the financial statements of the parent company and the Group. The financial statements of the parent company comprise the balance sheet as at 31 December 2018, the income statement and statements of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies. The consolidated financial statements comprise the balance sheet as at 31 December 2018, the statements of other comprehensive income, income statement, cash flows and changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies. In our opinion,

► the financial statements are prepared in accordance with the law and regulations ► the financial statements present fairly, in all material respects, the financial position of the parent company as at 31 December 2018, and of its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway ► the consolidated financial statements present fairly, in all material respects the financial position of the Group as at 31 December 2018 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU

Basis for opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company and the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.

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Non-current assets – Property plant and equipment (PPE) and assets under construction Agder Energi has significant investments, including maintenance and upgrades of production facilities and the grid. Revenues from the grid are regulated by the authorities represented by the Norwegian Water Resources and Energy Directorate (NVE), and the accounting for PPE and assets under construction has significant impact for future revenue cap. In 2018 MNOK 225 was expensed as maintenance and MNOK 1 409 was capitalised as PPE and assets under construction. Since PPE and assets under construction are significant, has a higher inherent complexity and degree of judgement and effect on future revenue cap, this was assessed to be key audit matter. We have throughout our audit evaluated the group’s internal control related to investments, maintenance and upgrades of the production facilities and the grid. To evaluate if the criteria for capitalization is met, timing for start of depreciation and the assets useful life, we have gathered and evaluated relevant supporting documentation for a sample of projects and discussed the accounting treatment with management. We have performed analytical procedures for acquisitions of PPE and assets under construction, and expensed maintenance by comparison to prior periods and established assumptions. See note 1 and 15 in the consolidated financial statements for further information.

Accounting for financial derivatives and long-term delivery contracts Agder Energi produces electric power that primarily is sold in the Norwegian market, where the spot price is volatile and nominated in Euro at Nord Pool Spot. The exposure for changes in the power spot price and currency exchange rates are partly hedged using financial derivatives and long-termed delivery contracts. Financial derivatives comprise of energy and currency derivatives, which are accounted for at fair value with changes in fair value recognised in the consolidated income statement. Some long-termed delivery contracts are priced in Euro, where the embedded currency derivative is accounted for at fair value. Changes in spot price for power and currency lead to significant changes in the fair value of financial derivatives and embedded derivatives in long-termed delivery contracts. Financial derivatives and long-termed delivery contracts are considered to be a key audit matter based on the number of transactions, complexity and degree of judgement related to the assessment of fair value. We have throughout our audit evaluated the group’s internal control over trading, monitoring and accounting for financial derivatives and long-termed delivery contracts. Our audit procedures included test of existence, completeness and contractual terms for the financial derivatives through external confirmations. Additionally we have tested the valuation for a sample of the group’s financial derivatives through external confirmations. Fair value of embedded derivatives was assessed through external benchmarks of future exchange rates and interest rate curves. We performed analytical procedures and evaluated managements analysis of changes in fair value of financial instruments related to the power generating portfolio. Further we have evaluated the presentation and classification of the financial derivatives and long-termed delivery contracts in the consolidated financial statements, including information presented in the notes. See note 6, 25, 26 and 27 for further information.

Other information Other information consists of the information included in the Company’s annual report other than the financial statements and our auditor’s report thereon. The Board of Directors and Chief Executive Officer (management) are responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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Responsibilities of management for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the parent company and International Financial Reporting Standards as adopted by the EU for the financial statements of the Group , and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company ’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarant ee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also

► identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; ► obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinio n on the effectiveness of the Company’s internal control; ► evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management; ► conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor ’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern; ► evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation; ► obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

Opinion on the Board of Directors’ report and on the statements on corporate governance and corporate social responsibility Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors’ report and in the statements on corporate governance and corporate social responsibility concerning the financial statements, the going concern assumption and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations.

Opinion on registration and documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to ensure that the Company's accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway.

Kristiansand, 2 April 2019 ERNST & YOUNG AS

Finn Espen Sellæg State Authorised Public Accountant (Norway)

(This translation from Norwegian has been made for information purposes only.)

Independent auditor's report - Agder Energi AS

A member firm of Ernst & Young Global Limited

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ALTERNATIVE PERFORMANCE MEASURES (APM)

Agder Energi’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Alternative performance measures are used to provide relevant supplementary information to the IFRS financial statements by adjusting for impacts that are not considered relevant to the underlying profit for the period. Using alternative performance measures that better reflect the underlying value added by the Group will make it easier to compare results and cash flows over time. The alternative performance measures are defined, calculated and used consistently and transparently over time.

The alternative performance measures are used for internal management and governance purposes, and in May 2018 the municipal majority shareholders in Agder Energi decided that the dividend policy for the years 2018–2020 should use the previous year’s underlying profit under IFRS.

Agder Energi uses the following alternative performance measures:

- Underlying operating revenues: Operating revenues +/- the adjustments described below - EBITDA: Operating profit before depreciation and impairment losses - Underlying EBITDA: EBITDA +/- the adjustments described below - Underlying operating profit: Operating profit +/- the adjustments described below - Underlying net income: Net income +/- the adjustments described below

The following adjustments are made to calculate the Group’s underlying operating revenues, EBITDA, operating profit and net income:

1. +/- Unrealised gains and losses on electricity and currency contracts, interest rate contracts at fair value and currency loans.

Agder Energi has a significant volume of contracts that are measured at fair value under IFRS. These are mainly financial contracts whose aim is to hedge the value of future electricity generation. Future electricity generation is only recognised when it occurs. Fluctuations in the value of the financial contracts are excluded from the underlying results and are only included when they are settled. This ensures consistency in the timing of when the hedging instruments and hedged items are included in the underlying results. It also reduces fluctuations in the results and gives a more accurate idea of how Agder Energi has performed in the reporting period. Changes in the fair value of compensation power agreements and other contracts measured at fair value are also excluded from the underlying results. However, changes in the market value of the Group’s trading portfolios are included in the underlying results.

The underlying operating revenues, EBITDA and operating profit are adjusted for the pre-tax effect of unrealised gains and losses on electricity and currency contracts and of currency loans.

Underlying net income is adjusted for the post-tax effect of unrealised gains and losses on electricity and currency con- tracts and of currency loans. In addition, it includes the post-tax effect of unrealised gains and losses on interest rate swaps.

2. +/- Changes in deferred tax assets arising from negative resource rent carryforwards at power stations

The accounting rules require future tax savings from negative resource rent carryforwards to be included on the balance sheet as an asset. Agder Energi has implemented this requirement by including the estimated value of tax savings over the coming ten years on its balance sheet. This calculation is highly sensitive to changes in parameters like electricity prices in euros and the EUR/NOK exchange rate. The carrying amount of this accounting estimate is almost entirely governed by external factors such as electricity prices and the EUR/NOK exchange rate, so changes in the estimate recognised in the income statement tell us nothing about the underlying performance during the reporting period.

This adjustment is reflected in the underlying net income.

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3. +/- Material gains and losses on the disposal of businesses or ownership interests in businesses

An adjustment is made for material gains and losses on the disposal of businesses or ownership interests in businesses, since these are not considered to be part of the underlying performance in the reporting period. Material gains and losses refers to disposals of businesses or ownership interests in businesses with an impact on net income of at least NOK 25 million in a single financial year. Even if several items individually have a smaller impact than NOK 25 million, they are considered material if their total impact is greater than NOK 50 million in a financial year.

This adjustment is reflected in the underlying net income.

(Amounts in NOK million) 2018 2017 IFRS operating revenues 13 980 10 358 Unrealised gains and losses, electricity and currency 1 357 827 Material gains on the disposal of businesses or ownership interests in businesses -26 0 Underlying operating revenues 15 312 11 185

IFRS operating profit 967 1 062 Depreciation and impairment losses 659 708 IFRS EBITDA 1 626 1 770 Unrealised gains and losses, electricity and currency 1 357 827 Material gains on the disposal of businesses or ownership interests in businesses -26 0 Underlying EBITDA 2 957 2 597

IFRS operating profit 967 1 062 Unrealised gains and losses, electricity and currency 1 357 827 Material gains on the disposal of businesses or ownership interests in businesses -26 0 Underlying operating profit 2 298 1 889

IFRS net income (controlling interest’s share) -198 487 Changes in unrealised gains and losses after tax (see Note 3) 1 049 719 Changes in deferred tax assets from neg. resource rent carryforwards 49 -137 Material gains on the disposal of businesses or ownership interests in businesses -26 -224 Underlying net income (controlling interest’s share) 874 845

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The Otra is the biggest river in Southern Norway, and at 245 km long it is the eighth longest river in Norway. The Otra rises in the mountains north of Lake Sæsvatn in Telemark, and as it passes through seven municipalities in the counties of Aust-Agder and Vest-Agder it generates a significant amount of clean, renewable energy before entering the sea at Kristiansand.

CORPORATE SOCIAL RESPONSIBILITY (CSR) AT AGDER ENERGI IN 2018

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AGDER ENERGI CORPORATE SOCIAL RESPONSIBILITY (CSR) AT AGDER ENERGI IN 2018

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CSR 116 Sustainable energy for future generations 118 Agder Energi’s values 119 Sustainability at Agder Energi 120 Important sustainability topics for Agder Energi 121 Group CSR goals 123 Social Accounting 124

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CSR

NETWORK RELIABILITY LOST TIME INJURIES PER MILLION WORK HOURS

2018 99,94 % 2018 2,20

2017 99,98 % 2017 2,10

2016 99,98 % 2016 3,50

AVAILABLE DISTRIBUTION

2018 2017 2016 DISTRIBUTION OF Net amount the ADDED VALUE company 14,5 % 20,6 % 7,1 % (NOK MILL.) Net amount employees 20,2 % 21,4 % 22,8 %

Net amount lenders 4,9 % 5,1 % 6,5 %

Net amount the public sector 44,0 % 34,6 % 41,3 % Net amount the company 524

Net amount employees 728 Net amount Net amount lenders 177 shareholders 16,4 % 18,2 % 22,2 % Net amount the public sector 1 591 Net amount shareholders 592

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GREENHOUSETOTAL KLIMAGASSUTSLIPP GAS EMISSIONS (tCO²e) (tCO²e)

5000 Indirekte utslipp til elektrisitetsforbruk - Scope 2

4000 Direkte utslipp - Scope 1

3000

2000

1000

Direct emissions

0 Indirect emissions from purchased energy 2018 2017 2016 2015

Power stations

2018 2017 2016 58 58 58

Power stations refers to power stations owned by companies ­reporting in the CSR report and varies from the numbers presented earlier in the annual report

ENERGY GENERATIONS (GWH)

2018 2017 2016 2015 2014

Water 8 687,74 8 809,40 8 884,10 9 002,70 9 067,70

Solar PV 0,03 0,04 0,04 0,04 0,04

District heating 172,00 161,83 158,94 138,58 132,73

TOTAL ENERGY GENERATION 8 859,77 8 971,26 9 043,08 9 200,47 7 890,84

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SUSTAINABLE ENERGY FOR FUTURE GENERATIONS

Agder Energi has reported on the Group’s do our utmost to run our business in accor- work on sustainability in accordance with dance with the Global Compact’s two main the Global Reporting Initiative (GRI) since aims: to integrate the ten principles into our 2010. GRI is the most widely used frame- business activities, and to catalyse actions work for sustainability reporting, both and partnerships in support of the UN’s worldwide and in Norway. The GRI rules goals for sustainable development. changed in 2018, and there is now a clearer­ requirement to analyse which sustainability In the process of implementing the materi- topics are material for the Group itself, and ality assessment in Agder Energi’s sustain- which ones are important to the Group’s ability reporting, work on indicators for the stakeholders. Group as a whole and for individual compa- nies will play an important role. The UN’s 17 Moreover, the rules state that disclosures Sustainable Development Goals provide a shall reflect the materiality assessment – good framework for how Agder Energi can in other words, most information shall be help the world to achieve its shared desire given about the most important areas. for sustainable development. ­After performing this assessment in 2018, we found twelve topics that are particularly Agder Energi is also a member of Norway important to the Group and its stakehold- 203040, which is a business-led initiative ers. The 2018 sustainability report has been to identify new business opportunities dur- updated to reflect this. ing the transition to a low-carbon economy and to help Norway achieve its climate In 2000 the UN launched the Global Com- change goals by 2030. pact, which is a global network of compa- nies that support corporate social responsi- Our mission is clear: We provide clean bility and wish to promote responsible and ­energy for a sustainable society, now and sustainable business practices. The Global in the future. That means supplying sus- Compact is based on ten fundamental prin- tainable energy for future generations. ciples relating to human rights, labour stan- dards, the environment and anti-corruption. The principles are taken from international conventions, and as such they represent a shared set of values for global businesses. Unni Farestveit Agder Energi helped to establish the Global CSR Director Compact network in Norway in 2018. As a member of the network, we undertake to

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AGDER ENERGI’S VALUES

Agder Energi’s values set standards for our day-to-day work, both with ­respect to our own conduct and what we can expect of others. Together with our ethical­ guidelines, our values give us direction and the strength to make the right choices. Our values also provide the foundation for our work on sustainability. Our values are:

Closeness Credibility

Agder Energi shall be close to its customers and the We shall gain credibility by keeping promises, both to ­region. Customers shall know that we are there for them. third parties and within our organisation. The way in An open dialogue based on a joint understanding of the which we achieve our goals is just as important as facts helps us to bring out the best in each other. By reaching them. Individual employees must safeguard cooperating we preserve our regional identity and help their integrity and credibility in all of their activities, both to develop the region. within and outside the business.

Dynamism Innovation

We shall be dynamic, and have a clear corporate strategy We shall promote innovation and creativity, so that our that helps us to implement projects and achieve our employees become more skilled and efficient, enabling ­goals. This dynamism shall be shown both by the organi- them to help to grow and develop our business. Innova- sation and by individual employees. Organisational dyna- tion is a process in which people build on each other’s mism involves having decision-making procedures that contributions and ideas. We have to think in new ways ensure successful implementation and profitability. Indi- and create new processes, while also retaining the best vidual dynamism involves exploiting any opportunities aspects of what we currently do. that exist within the framework of our overall strategy.

For more information about the Group’s values, go to www.ae.no.

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SUSTAINABILITY AT AGDER ENERGI

Agder Energi’s values and ethical guidelines provide the foun- also includes a plan of action to ensure that the goals are met, dations for our business activities. That also applies to our work as well as clearly allocating responsibilities between the Group on sustainability. The CSR Director is responsible for the Group’s management team and the various companies. work on sustainability. In 2019 a new position of sustainability manager will be ­created Several governance documents have been drawn up to put our with responsibility for the Group’s work on sustainability. The sustainability principles into practice, including the Group CSR Group will focus on updating its CSR and Environmental Stra- and Environmental Guidelines and the CSR and Environmental tegy and on highlighting its contributions to achieving the UN Strategy. The business areas are responsible for carrying out Sustainable ­Development Goals. This partly reflects the fact that work on sustainability, including setting environmental goals and our stakeholders are demanding more and more information implementing measures to achieve those goals. This is described about sustainability and CSR, which means that highlighting the in more detail in the guidelines. The strategy defines CSR at the ­contribution we make will be a priority for the Group going forward. Group and clearly sets out its goals in this area. This document

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IMPORTANT SUSTAINABILITY TOPICS FOR AGDER ENERGI

In the autumn of 2018, Agder Energi carried out a detailed analysis biodiversity in the watercourses where it operates, while the impact of which sustainability topics are material for the Group itself, which of power lines on vulnerable species is an important topic for Agder ones are important to the Group’s stakeholders and which ones the Energi Nett. The Group regularly assesses the need to make Group affects through its operations. As a result of that process, the ­changes to its activities in relation to biodiversity. The Group CSR following topics were identified as being most important: and Environmental Guidelines will be updated in 2019.

• Anti-corruption Breaches of laws and regulations • ●Biodiversity It is important for the Group to adhere to laws and legislations, and • Breaches of laws and regulations there are procedures and systems in place to ensure compliance. • Health and safety Compliance is a key responsibility that is ensured through organisa- • ●Greenhouse gas emissions tion, routines and systems. The Group has establish a compliance • ●Impacts on local community function to assist the senior management team with executing • ●Laws and regulations these responsibilities via all its companies. • Energy utility sector • ●Staff training This compliance function is designed to prevent, detect, and handle • ●Privacy issues related to non-compliance. Agder Energi AS and the largest • ●Third party health and safety daughter companies have their own responsible compliance function. • ●Economic performance – direct • ●Economic performance – indirect The daughter companies report annually to Agder Energi AS with updates on this function. As of today, there is no established system Anti-corruption for continuous reporting of breaches in laws and regulation. How- The Agder Energi Group’s goal is that no form of corruption shall ever, no fines nor other penalties for breaches of laws or regulations take place anywhere within its operations. were recorded in 2018.

The Group’s anti-corruption activities comply with national and Health and safety ­international laws, regulations and conventions. In order to prevent Health and safety is the Group’s very highest priority. The level of corruption and misconduct, the Group has developed and imple- risk varies between companies that perform more work on site and mented a range of measures including ethical guidelines, proce- companies whose activities are mainly office-based. Nevertheless, dures for reporting and investigating misconduct, whistleblowing the area is a priority throughout the Group. channels, Integrity Due Diligence (IDD) for acquisitions and supplier requirements designed to minimise the risk of corruption risk. The Group HSE Guidelines set out guiding principles for the ­approach to health and safety. The document also deals with the The Group supports anti-corruption activities through its gover- duties and areas of responsibility of managers and employees nance documents and stated attitudes, and by setting clear ­within these areas. Agder Energi has a joint health and safety man- ­standards for its companies. The corruption risk at the Group varies agement system for the whole Group, while subsidiaries also have depending on a variety of factors such as the type of activity a their own manuals dealing with company-specific matters. company engages in, the markets it operates in and the scale of its business. The Group also discusses anti-corruption activities during Agder Energi has a zero accident vision, and aims to have a low conversations with the management teams at companies, ­publishes level of sickness absence (< 3.0%). We work actively to create a an anti-corruption handbook and investigates third parties’ ethical working environment that is enjoyable, rewarding and open, where guidelines and anti-corruption programmes. Annual corruption risk risks are under control and all work activities are completely safe. assessments are performed on companies’ business processes, and employees receive regular training through annual, web-based Our operations are subject to a number of laws and regulations, courses and dilemma training adapted to the actual risks at their with the most important ones for health and safety being laid down companies. by the Norwegian Directorate for Civil Protection, the Norwegian Labour Inspection Authority, the Norwegian Water Resources and Biodiversity Energy Directorate (NVE) and the Norwegian Environment Agency. Biodiversity is important to the Group and particularly to the We are regularly audited by the authorities to ensure that our ­companies Agder Energi Vannkraft and Agder Energi Nett, as a lot ­current systems are compliant and are improved where necessary. of their activities take place in the countryside. All Group companies follow the Group CSR and Environmental Guidelines, which give the Greenhouse gas emissions companies themselves responsibility for setting goals with respect As a Group involved in generating renewable energy with low green- to their environmental impacts. Agder Energi Vannkraft focuses on house gas emissions, it is also important for us to focus on reducing

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our own greenhouse gas emissions. Electricity consumption is the more systematic. The model suggests specific learning and devel- biggest source of our direct emissions. The Group reduces these opment activities for development plans. The development plan is emissions by using guarantees of origin to cover some of its an important topic in employee appraisals, which provide quality ­consumption. Guarantees of origin are a certification system for elec- assurance of the individual’s development and are held twice a year. tricity used to document that a certain amount of electricity has been generated from a specific energy source. Distribution losses are Privacy the biggest source of the Group’s indirect emissions, but other signi­ Data protection is important to the Group – particularly in relation to ficant sources include rental vehicles, leased vehicles and air travel. two stakeholder groups: customers and employees. The data protec- tion rights of employees are important for the whole Group, while the Impacts on local community rights of customers are relevant to companies that process informa- The local community and the Agder Energi Group are symbiotic. Our tion about private individuals, such as Agder Energi Nett and LOS. modern society couldn’t function without the electricity supplied by the Group, and without the local community in which it operates, Agder Energi must do its utmost to respect the data protection the Group would be unable to fulfil its mandate. rights of Norwegian residents, its customers and its employees. The Group has a dedicated data protection officer, and rules and proce- Work in relation to impacts on the local community is coordinated dures have been introduced to safeguard the rights of data subjects. at the Group level, but the business areas also take it into consider- Each company has appointed someone who is responsible for data ation in their day-to-day operations. As the business activities of protection, and all employees have also completed a training course the companies in the Group vary, so do their local impacts. on the new regulation.

Energy utility sector Third party health and safety The electric power industry has an important social mission, but it Third party health and safety is particularly important in conjunction also has the potential to have a positive or negative impact on the with big development projects, infrastructure and power lines. The economy, environment, climate and society. Some of the topics that Group’s big projects often take place in areas used by third parties. are important to energy companies in general are not as relevant to In order to ensure the safety of our own staff and of contractors, organisations that base their activities on generating and distribut- suppliers and subcontractors, the Group must ensure that it is safe ing renewable hydroelectric power. for third parties to operate in and around the site. During the initial phase of big development projects, a risk analysis is performed cov- Environmentally-friendly renewable energy generation is one of the ering the safety of third parties. most important ways in which we can combat climate change. The way in which this work is conducted is part of Agder Energi’s busi- Economic performance – direct ness strategy, and as Norway’s fourth largest electricity utility the Our economic performance is a prerequisite for running the com- Group makes an important contribution to society in this area. pany and is of vital importance to the Group itself and to most of its stakeholders. Economic performance is an important part of the Staff training Group’s overall strategy and communication with stakeholders, but Agder Energi considers the expertise of its employees to be one of it is also managed at each business area through the companies’ its most important resources. Agder Energi believes that in order to business strategies. get the best out of every single person it must have a safe, good working environment where the diversity of people and their exper- When the Group achieves strong financial results, this also gener- tise are valued and developed. It is the responsibility of all employ- ates indirect economic impacts in the business community through ees, including managers and their staff, to help create that kind of greater investment in infrastructure and new projects. The Group’s working environment. value added statement shows how wealth is created and distributed amongst employees, lenders, the public sector, shareholders and the The HR/health and safety strategy deals with how Agder Energi company itself. should recruit, develop and make use of human resources in order to achieve its goals. The aims of the HR/health and safety strategy Economic performance – indirect include becoming a learning organisation with access to the exper- Agder Energi is also very conscious of its indirect economic ­impacts. tise needed for the future, and having employees who help bring For example, those generated by building infrastructure. They are about change, take responsibility and produce good results. The particularly significant in the case of companies like Agder Energi whole Group works systematically on skills development in order to Varme, Agder Energi Nett and Agder Energi Vannkraft. These invest- make sure we have the right expertise for the future and to tie this ments and the operation of our existing facilities provide work for in with the development plans of individual employees. local contractors. These kinds of economic impacts are the result of the Group’s activities and operations, which are governed by strate- The Group uses the 70:20:10 model for professional development, gies and guidelines at the Group level, as well as by individual strat- which provides inspiration as to how learning can take place at the egies for each business area. workplace and how work on learning and development can become

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GROUP CSR GOALS

Based on the CSR and Environmental Strategy and the Group and the elimination of forced labour, child labour and discrimina- CSR and Environmental Guidelines, and informed by the Ethical tion at the workplace. Guidelines and Group HR Guidelines, we have set joint goals for the Group relating to key areas of CSR. Both individual companies Labour rights are monitored using a risk assessment of the likeli- and the Group management team are responsible for meeting hood of them being breached. For suppliers and contractors, the the Group CSR Goals. The goals cover four main areas: importance of the delivery and the project are also taken into account. Measures used to guarantee labour rights include audits, Human rights visits to suppliers and the obligation to ensure compliance. The Agder Energi and its subcontractors shall conduct themselves in obligation to ensure compliance is an obligation to ensure that accordance with the UN’s internationally accepted human rights pay and working conditions at suppliers comply with the current conventions. A subcontractor is defined as someone who per- regulations on the general application of collective agreements. forms services for or sells products to Agder Energi. The Group and its subcontractors shall never be complicit in the breach of Environmental impacts human rights. Each company within the Agder Energi Group draws up environ- mental goals for its operations, reflecting the nature of its business. This is backed up by a risk assessment of various parts of the Subcontractors must have procedures in place for environmental business focusing on the likelihood of breaches of human rights. protection measures. Suppliers are assessed on the basis of their importance to Agder Energi, and checks are carried out during audits and site visits to Individual companies are responsible for ensuring that their suppli- suppliers. ers meet this requirement. Amongst other things, some companies require suppliers and contractors to report various environmental Labour rights data. Agder Energi and its subcontractors shall comply with the eight fundamental conventions of the International Labour Organisation (ILO) on the right to organise, the right to collective bargaining

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SOCIAL ACCOUNTING

The value added statement gives an account of the wealth created by the Group over the year, and shows how it is distributed amongst the stakeholder groups: employees, lenders, the public sector, shareholders and the company itself. The figure for value added is adjusted for unrealised gains and losses on energy, currency and interest rate contracts.

(Amounts in NOK million) 2018 2017

Operating revenues 15 367 11 050 Goods consumed/operating expenses -11 091 -7 188 Gross added value 4 276 3 862 Capital depreciation -659 -708 Net added value 3 617 3 154 Net financial items, excl. interest -5 -73 Discontinued operations - 244 Available for distribution 3 612 3 325

DISTRIBUTION OF ADDED VALUE

Employees Gross salaries and benefits 1 119 1 118 Tax paid by employees -259 -262 Employers' National Insurance Contributions -132 -144 Net amount received by employees 728 712

Lenders Interest, etc. paid to lenders 177 171 Net amount received by lenders 177 171

The public sector Ordinary taxes 198 209 Property taxes 143 146 Resource rent tax 859 390 Tax paid by employees 259 262 Employers' National Insurance Contributions 132 144 Net amount received by the public sector 1 591 1 151

Shareholders Allocated for distributions by the company (dividends/guarantees) 592 606 Net amount received by shareholders 592 606

The company Retained earnings 530 678 Non-controlling interest's share of profit -6 7 Net amount received by the company 524 685

Total amount distributed 3 612 3 325

AGDER ENERGI ANNUAL REPORT 2018 124 Design: Kikkut kommunikasjon, Photo: Agder Energi, Translation: Språkverkstaden

The Corporate social responsibility report for Agder Energi 2018 is available at ae.no

Agder Energi P.O. Box 603 Lundsiden, 4606 Kristiansand Visiting address (head office): Kjøita 18, 4630 Kristiansand Tel. no.: +47 38 60 70 00 Organisation number: NO 981 952 324

Frontpage photo: Ida Gunstveit Foss intended to educate within health care, but changed her mind and is now an industrial mechanic in Agder Energi.